Page 33 - Banking Finance May 2023

ARTICLE

note of the preparations in respect of
financial sector issues to be taken up
during India's G-20 Presidency.
Members resolved to remain vigilant
and proactive to ensure that financial
markets and financial institutions
remained resilient amidst destabilising
global spill overs.

Reserve Bank of India
(Unhedged Foreign Currency
Exposure) Directions, 2022:
Entities which do not hedge their
foreign currency exposures can incur
significant losses during a period of
heightened volatility in foreign
exchange rates. These losses may
reduce their capacity to service the
loans taken from banks and increase
their probability of default thereby
affecting the health of the banking
system. To address the risk emanating
from banks' exposure to entities having
Unhedged Foreign Currency Exposure
regulatory issues relating to Gujarat International Finance
(UFCE), several guidelines / instructions were put in place
Tec-City (GIFT) - IFSC, and the need for utilisation of the
starting from October 1999. A review of
these guidelines was undertaken and
consolidated as master directions to all
commercial banks (excluding payments
banks and RRBs). Some of the key changes
incorporated in the directions are to
provide clarity/ reduce compliance burden
are as under:
a) Exemption from UFCE guidelines: Banks'
exposures to entities arising from
derivative transactions were exempted,
provided such entities have no other
exposures to banks in India. This exemption
has been expanded to include factoring
transactions.
b) Alternative method for exposure to
smaller entities: To reduce the compliance
services of registered valuers by all government burden, the threshold for 'smaller entities' based on total
departments. The Council noted that there is a need to exposure from banking system has been revised to Rs.
monitor financial sector risks and market developments on 50 crores (up from Rs.25 crore). For such entities, banks
a continuous basis to ensure appropriate and timely action will not be required to periodically obtain hedging
for strengthening financial stability. The Council also took information.

BANKING FINANCE | MAY | 2023 | 31