MUMBAI : Cracking the whip on companies having huge unhedged foreign exchange exposures, the Reserve Bank of India has inspected books of some corporate entities, bank sources said.
Subsequently, the central bank has asked banks to refrain from further lending to companies found to have huge unhedged foreign exchange exposures. “The Reserve Bank is actually going and inspecting directly some corporate and saying that this unhedged exposure won’t do, and passing instructions to bank to say that no more funding (to that company),” a head of a large private bank said.
While it remained unclear how the RBI was sourcing corporate information on unhedged exposures, bankers indicated that the RBI was directly seeking data from corporate entities.
Sources said while the central bank’s pro-active role in inspecting the books of companies for unhedged foreign exchange exposure is to ensure that the economy is guarded from external sector vulnerabilities, the RBI’s action doesn’t mean that it is overly worried on the dollar-rupee exchange rate.
The RBI has already asked banks to make higher provisions for loans given to companies with such large unhedged exposures.
The central bank believes that these large unhedged exposures are not completely factored into the rating and loan pricing of companies, and leaves the banking system exposed to debt default if the company’s books are hit by volatile foreign exchange markets.
Starting Apr-Jun, RBI has directed banks to make provisions for likely losses arising out of unhedged foreign exchange exposure of their corporate clients. -Cogencis