Keeping in view the need to keep “suitability and appropriateness” criteria in view, banks are expected to show restraint while offering forex derivative products to the corporates as the latter often enter into such the market move adversely. This could lead to enormous problems for the banks as also for the corporates.
Therefore, Reserve Bank has been emphasizing that banks should insist on Board approved policy covering un-hedged foreign exchange exposure of all their clients including the SMEs. Further, while extending fund and non-fund based credit facilities to corporates, banks should rigorously evaluate the risks arising out of un-hedged foreign currency exposures of the corporates and price them in the credit risk premium.