Amid reports of corporates making losses on hedging forex products other than dollar, the Reserve Bank of India (RBI) may soon come out with guidelines on forex derivatives, which is widely expected to discourage banks from trading in foreign currencies other than in Rupee-Dollar.

“We are working on the guidelines of forex derivatives,” an RBI spokesperson told PTI here.

The apex bank, however, made it clear that it has not issued any directive so far to banks trading on exotic forex products, which had reportedly resulted in making losses to corporates to the tune of Rs 1,000 crore.

Steep appreciation

“No such directions have been issued so far,” RBI said in the wake of reports that several companies had opted for complex forex derivative products in the phase of steep appreciation in rupee.

Exotic hedging structures involve conversion of dollar receivables into other currencies like Swiss Franc or Japanese Yen, after taking a view on the movement of those currencies. Corporates with export receivables hedge foreign currency exposures in a bid to prevent losses due to appreciation in Rupee. However, companies started complaining when they suffered losses owing to appreciation of other currencies as well. According to market-watchers a few banks, including two foreign banks, have been increasingly engaged in trading forex derivatives of their corporate customers instead of merely hedging their exposure.

Meanwhile, ICICI Bank is also facing a petition in the High Court, from a local firm which was asked to pay an amount as margin money on their derivatives contract.

Effective tool

ICICI Bank Executive Director Madhavbi Puri Buch said, the Chief Finance Officer of the company had agreed to enter into the deal and pay the margin money if its position went beyond a particular limit in the derivatives market.

Hedging is an effective tool for medium and large-sized, corporates having huge export commitments, to prevent losses from unexpected fluctuations in the exchange rates. According to a private bank ceo corporate losses are mainly due to lack of understanding among ‘customers’ about the hedging products.