Unhedged Foreign Currency Exposure of Corporates
To ensure that each bank has a policy that explicitly recognises and takes account of risks arising out of foreign exchange exposure of their clients, foreign currency loans above US $10 million, or such lower limits as may be deemed appropriate vis-à-vis the banks’ portfolios of such exposures, should be extended by banks only on the basis of a well laid out policy of their Boards with regard to hedging of such foreign currency loans. Further, the policy for hedging, to be framed by their Boards, may consider, as appropriate for convenience, excluding the following:
• Where forex loans are extended to finance exports, banks may not insist on hedging but assure themselves that such customers have uncovered receivables to cover the loan amount.
• Where the forex loans are extended for meeting forex expenditure.
Banks may also consider stipulating a limit on unhedged position of corporates on the basis of bank’s Board approved policy.In this context, attention of the readers is also invited to RBI’s Circular No. DBOD.No.BP.BC.85/21.06.200/2013-14 on “Capital and Provisioning Requirements for Exposures to entities with Unhedged Foreign Currency Exposure” dated January 15, 2014 providing requirements for exposures to entities with unhedged foreign currency exposure.