The Reserve Bank of India (RBI) on Tuesday revised guidelines on foreign currency exposure of banks, aimed at insulating them from forex market volatility.
As per the changes initiated by the central bank, lenders will have to assess the unhedged foreign currency exposures of all counterparties to whom they have an exposure in any currency, going ahead.
Foreign currency exposure of all entities would have to be ensured by banks at least once a year, the RBI said.
The revised rules will come into force from January 1, 2023 onwards.
“Entities which do not hedge their foreign currency exposures can incur significant losses during the period of heightened volatility in foreign exchange rates,” the RBI said.
“These losses may reduce their capacity to service the loans taken from the banking system and increase their probability of default, thereby affecting the health of the banking system,” it added.