As India Inc’s currency risk nears its peak, risk management is gaining momentum.
According to consultancy firm KPMG recent survey report, released on Wednesday, nearly 66 per cent of the corporate respondents reported a higher hedge ratio.
The report suggested that the currency risk gets priority among the market risks amid current currency volatility. Other key market risks, which the Indian corporate sector is facing, are emerging on the interest rate and commodity price fronts.
“This is as expected as currency exposure is the most visible market exposure among corporates. As far as commodities are concerned, lack of awareness about exposures, hedge instruments etc. result in reduced focus on this area”, KPMG said.
It pointed out that post-2008 crisis, there has been a greater focus on managing market risks and 88 per cent of respondents to the survey reported an increased involvement of risk management in business decision-making process.
“While a greater number of companies are focusing on managing risk, the approach still leaves much to be desired as is evident from 87 per cent of the respondents saying that a stronger organisational risk culture would help in improving risk management in the company”.
While 73 per cent of the companies have a documented policy on hedging their currency exposures, the implementation at the operational level, was not up to the mark for over two fifths of the respondents.
“A need for better communication between the treasury and the business units was also felt by a majority of the respondents,” the report said.
Most companies continued to look at the profit or loss on the hedges taken against the spot rates prevailing on maturity, putting the treasury in a perpetual dilemma of how much to hedge and for what period. The pressures of being always on the right side of the market inhibited the desired approach to managing market risks, KPMG felt.
jayanta.mallick@thehindu.co.in