BackRBI deputy governor warns against high levels of unhedged forex exposures
No amount of foreign exchange reserve can cushion when there is extreme volatility and external shocks, says H.R. Khan
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Mumbai: Reserve Bank of India (RBI) deputy governor H.R. Khan on Tuesday warned of elevated levels of unhedged foreign currency exposures among Indian corporates, though he said the regulator will steer clear of micromanagement.
“While we certainly do not want to micromanage what is clearly a commercial decision, corporates need to take care of the potential risks arising out of unhedged exposures," Khan said while talking at the National Risk Management Summit 2015 organised by the Confederation of Indian Industry.
Khan said while India was in a much better position in terms of foreign exchange reserves at $330 billion, there could be future risks.
“No amount of foreign exchange reserve can cushion when there is extreme volatility and external shocks," he said.
The deputy governor pointed out that the global financial slump had exposed Indian corporates to many risks which they had not anticipated. Going ahead, non-financial companies could look at conducting stress tests, which are periodically done by financial firms, to check their resilience with respect to emerging risks.
Khan said Indian corporates may soon face difficulty in raising further resources not because of lack of such resources or the lack of business opportunities, but because of the way debtors respect their financial commitments.
“It is very likely, in the days ahead, we will experience enhanced scrutiny of credit decisions of banks by depositors, tax payers, analysts and shareholders," he said.
Khan hinted that this might be due to the deteriorating credit culture, adding the RBI would need to examine it further.
The deputy governor said that while macro economic vulnerabilities facing the economy have significantly receded thanks to better gross domestic product (GDP) growth numbers, current account deficit (CAD) numbers, inflation numbers and foreign exchange reserve, it’s not time to be complacent.
“At this juncture, India cannot afford to lose the great opportunity it possibly got over so many years and its strong position among emerging countries," he said.
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