RBI warns companies, banks on unhedged forex loans - 1 views

• 
  #1 koyal singh on 11 Apr 15

   

  Reserve Bank Governor Raghuram Rajan  warned companies against keeping their foreign
  currency exposures unhedged, saying they might face "big risk" in
  case of change in the monetary policy globally. 
  
  
  
  Companies have to recognise that they are taking
  a big risk (by not hedging their forex exposures), especially if monetary
  policy changes around the world," Rajan said at a post-policy media
  briefing. 

  
  
  

  He, however, added that RBI was not planning to introduce any
  "draconian measures" to ensure hedging. 
  
  
  
  On firming up of the rupee, the Governor said
  the volatility can happen anytime as RBI is not holding up the rupee at some
  particular level. 
  
  
  
  "That should be clearly communicated to
  companies also. They should have absorbed it by now that our focus is on undue
  increases in volatility, but we are not going to maintain any particular level
  for the rupee," he said. 

  
  
  

   

  
  
  

  Rajan said companies should take the message in their own
  interest. 
  
  
  
  Deputy Governor H R Khan also acknowledged that
  the unhedged exposures of the corporates poses a risk and overall percentage of
  hedging remains low. 
  
  
  
  On the move to allow domestic companies to raise
  funds through rupee bonds, Rajan said "that would be an alternative to
  borrowing ECBs in dollars and holding it unhedged". 

  
  
  

   

  
  
  In the monetary policy, the RBI said it would allow domestic corporates
  eligible to raise external commercial borrowing (ECBs) to raise funds through
  issuance of rupee bonds to overseas investors. 
  
  
  
  Stating that there has been an addition of USD
  4.6 billion to the ECB outstandings on a net basis between April 2014 and
  January 2015, Rajan said he is not aware of any "substantial explosion in
  the foreign borrowings in the last quarter. 
  
  
  
  "The other factor that one must recognised
  that is we are also trying to improve the extent to which distress is resolved.
  If distress is always resolved with banks taking the hit and promoters not
  going scot-free, there is an incentive sometimes to certain kinds of bets. 
  
  
  
  "They become one way bets if dollar
  strengthens against the rupee the banks take the hit but is the dollar weakens
  the equity holders benefit. So, that also is something that hopefully the
  measures we have taken will try and convince people that kind of negotiation is
  unlikely to happen going forward and the banks are not going to forever taking
  the downside hit when position are left unhedged," he added. 

   

  <div class="cArrow"> </div><div class="cContentInner"><p>Reserve Bank Governor Raghuram Rajan  warned companies against keeping their foreign <br /> currency exposures unhedged, saying they might face "big risk" in <br /> case of change in the monetary policy globally. <br /> <br /> <br /> <br /> Companies have to recognise that they are taking <br /> a big risk (by not hedging their forex exposures), especially if monetary <br /> policy changes around the world," Rajan said at a post-policy media <br /> briefing. </p> <br /> <br /> <p>He, however, added that RBI was not planning to introduce any <br /> "draconian measures" to ensure hedging. <br /> <br /> <br /> <br /> On firming up of the rupee, the Governor said <br /> the volatility can happen anytime as RBI is not holding up the rupee at some <br /> particular level. <br /> <br /> <br /> <br /> "That should be clearly communicated to <br /> companies also. They should have absorbed it by now that our focus is on undue <br /> increases in volatility, but we are not going to maintain any particular level <br /> for the rupee," he said. </p> <br /> <br /> <p> </p> <br /> <br /> <p>Rajan said companies should take the message in their own <br /> interest. <br /> <br /> <br /> <br /> Deputy Governor H R Khan also acknowledged that <br /> the unhedged exposures of the corporates poses a risk and overall percentage of <br /> hedging remains low. <br /> <br /> <br /> <br /> On the move to allow domestic companies to raise <br /> funds through rupee bonds, Rajan said "that would be an alternative to <br /> borrowing ECBs in dollars and holding it unhedged". </p> <br /> <br /> <p> </p> <br /> <br /> In the monetary policy, the RBI said it would allow domestic corporates <br /> eligible to raise external commercial borrowing (ECBs) to raise funds through <br /> issuance of rupee bonds to overseas investors. <br /> <br /> <br /> <br /> Stating that there has been an addition of USD <br /> 4.6 billion to the ECB outstandings on a net basis between April 2014 and <br /> January 2015, Rajan said he is not aware of any "substantial explosion in <br /> the foreign borrowings in the last quarter. <br /> <br /> <br /> <br /> "The other factor that one must recognised <br /> that is we are also trying to improve the extent to which distress is resolved. <br /> If distress is always resolved with banks taking the hit and promoters not <br /> going scot-free, there is an incentive sometimes to certain kinds of bets. <br /> <br /> <br /> <br /> "They become one way bets if dollar <br /> strengthens against the rupee the banks take the hit but is the dollar weakens <br /> the equity holders benefit. So, that also is something that hopefully the <br /> measures we have taken will try and convince people that kind of negotiation is <br /> unlikely to happen going forward and the banks are not going to forever taking <br /> the downside hit when position are left unhedged," he added. </div>

  ...

  Cancel

To Top