Banks violated forex derivative norms: RBI.

Even as the Supreme Court is scheduled to start hearing on a case involving losses suffered by companies in the foreign exchange derivative transactions in 2007-08 in the next few days, a Reserve Bank of India (RBI) report has said there were irregularities and deviations by banks in complying with the provisions of the Foreign Exchange Management Act and the Reserve Bank of India guidelines. It was also equally critical of corporates for using forex derivatives “as profit management tools” rather than risk mitigants.

“These violations related to the failure to verify the underlying of derivative transaction, offering structures resulting in increase in risk and receipt of net premium by corporates, booking of contracts under past performance route beyond the eligible limit and offering products,” the RBI said in its report to the Central Bureau of Investigation. However, the RBI which held discussions with the CEOs of 22 banks that were active in the business came to the conclusion that “this is not a systemic issue”.

Source : indianexpress.com