RBI norms on unhedged Fx exposure unlikely to impact banks much

In June, the RBI had said that of the outstanding ECBs of $180 billion, 44 per cent was unhedged

The Reserve Bank of India’s (RBI’s) directions over banks’ treatment of unhedged foreign currency exposure have increased regulatory requirements for lenders at a time when the rupee has weakened sharply against the US dollar.

While the RBI has listed out higher provisioning and capital requirements for banks, which face potential losses from unprotected foreign currency exposures, analysts said the central bank’s directions were unlikely to have a major impact on bank profitability now.

For banks, the risk of a weakening rupee plays out in the form of their exposure to corporate clients, which have exposure to overseas currencies through borrowing.