MUMBAI: The Reserve Bank of India (RBI) has told banks they can ask it to slightly relax individual limits on net open positions in foreign exchange, which were cut sharply in December, according to deputy Governor H.R. Khan.
The central bank has already allowed some banks that have approached it to carry slightly higher net open positions in foreign exchange if they had big positions before the new rules were imposed, sources at two banks said earlier yesterday.
“We have told (the Foreign Exchange Dealers’ Association of India), based on their (banks’) requirements, they can come. Some banks have come,” said Khan on sidelines of an event.
The sharp fall in the rupee against the dollar last year prompted the RBI to impose restrictions on speculative trading by reducing the net overnight open position limit of banks.
But banks that had large net open positions have been finding it difficult to meet requirements on proprietary trades within the narrow limit set by the RBI, dealers said.
“Most banks had approached RBI over the last two weeks to relax the limit a bit as they we were already having high net open positions which were difficult to manage within such a narrow band,” said a dealer at a foreign bank that was granted a relaxed limit.
The nominal change is designed to accommodate technical fluctuations and will not have an impact on the rupee or encourage speculative trading, dealers said.
“The banks with large books were not able to manage their net open position limits and the new levels given were getting breached,” said another dealer at a private bank.
“So banks represented with RBI asking for the bare minimum levels required depending on their book sizes and exposure in other markets and the minimum has been granted to banks.”
Source : biz.thestar.com