Mumbai: The Reserve Bank Wednesday asked banks to put in place a mechanism to rigorously evaluate the risks arising out of unhedged foreign currency exposure of corporates and price them in the credit risk premium.
It also advised banks to furnish compliance and action taken reports on the subject before end-December 2012.
In a notification, RBI said unhedged forex exposure risks are not being evaluated rigorously and built into pricing of credit despite instructions.
"It is emphasised that unhedged forex exposure of corporates is a source of risk to the corporates as well as to the financing bank and the financial system," it said.
It further said a large unhedged forex exposures of corporates have resulted in some accounts turning non-performing.
"Banks are therefore advised that in accordance with the guidelines of February 2012 they should put in place a proper mechanism to rigorously evaluate the risks arising out of unhedged foreign currency exposure of corporates and price them in the credit risk premium," it said.
Banks should also consider stipulating a limit on the unhedged position of corporates on the basis of banks’ Board-approved policy, it said.
Banks are required to monitor the unhedged portion of forex exposure of the corporates whose total foreign currency exposure are high at above USD 25 million of its equivalent and extend loan above USD 10 million only on the basis of a well laid out policy.
Banks are also required to take into account their exposure from all sources including foreign currency borrowings and external commercial borrowings in case of consortium / multiple banking arrangements for arriving at aggregate unhedged foreign currency exposure of clients.
In a separate notification, RBI also asked banks to strictly adhere to the instructions regarding sharing of information relating to credit, derivatives and unhedged foreign currency exposures among themselves.
"Any sanction of fresh loans/ad hoc loans/renewal of loans to new/existing borrowers with effect from January 1, 2013 should be done only after obtaining/sharing necessary information," RBI said.
Banks would be liable to action in case of non-adherence to the instructions including imposition of penalty, RBI said.
It further asked them to put in place an effective mechanism for information sharing by March 31, 2012.