The Reserve Bank of India on Thursday asked banks to rigorously evaluate the risks arising out of un-hedged foreign currency exposure of the corporates and price them in the credit risk premium while extending fund-based and non-fund-based credit facilities to corporates.
Further, banks could also consider stipulating a limit on un-hedged position of corporates on the basis of banks' board-approved policy.
The RBI has issued the aforementioned directives as recent events relating to derivative trades showed that excessive risk-taking by corporates could lead to severe distress to them and large potential credit loss to their bankers in the event of sharp adverse movements in currencies.
The recent episode of volatility in rupee exchange rate when the rupee depreciated by more than 10 per cent in a short period of six weeks has sharply underlined the importance of prudent management of foreign exchange risk, the RBI said.