Forex derivatives restricted to cos with networth of Rs 200 cr

Tightening the norms for foreign exchange risk cover, the Reserve Bank of India (RBI) today said only companies with a networth of Rs 200 crore can use derivatives to hedge against risk of volatility in currency rates.

Earlier in February, the RBI had pegged the networth limit at Rs 100 crore while allowing corporates to hedge against exchange rate risks associated with trade transactions and external borrowings.

"It has now been stipulated that listed companies and their subsidiaries or joint ventures or associates having common treasury and consolidated balance sheet or unlisted companies with a minimum networth of Rs 200 crore can undertake cost reduction structures," the RBI said in a notification.

Forex derivatives are a product sold by banks to companies to help them hedge against risks of fluctuations in foreign exchange value and interest rates.

The Reserve Bank added all such hedge products would be "fair valued" on each reporting date.

It also said companies need to follow accounting procedures as mandated by the Institute of Chartered Accountants of India (ICAI).

Last month, the RBI had fined 19 banks, including SBI, HDFC Bank, ICICI Bank and Citibank, for violating norms while selling derivative products to companies and exporters.