RBI rules on unhedged forex exposure

To prevent losses caused by increased forex market volatility, the Reserve Bank of India (RBI) announced the unified guidelines for banks on additional capital and provisioning requirements in regard to unhedged foreign currency exposures of any company.

Due to the 10% decline in the Indian rupee’s value versus the dollar, there has been more scrutiny of businesses’ unhedged exposure from borrowing in foreign currencies. The required incremental provisioning ranges from 20 basis points (bps) to 80 bps. 

The central bank announced that if a bank faces a probable loss of more than 15% but no more than 30%, the basis point for the provisioning requirement will be 20 bps. The provisioning requirement is 40bps if the potential loss is greater than 30% and up to 50%. The provisioning requirement will be 60 bps if it is greater than 50% and up to 75%. And the requirement is 80 bps if the potential loss exceeds 75%.