The Reserve Bank of India has made up its mind to examine the derivative exposure of some private and public sector banks after the IndusInd Bank disclosed the lapse in its derivative accounting. Reuters have given this information quoting at least three sources who are aware of the case. Sources said that the Reserve Bank of India has sought details of their foreign borrowings and deposits from lenders as well as their foreign exchange hedge positions.
Trending videos
RBI wants to know the problem and not big: sources
Earlier, on Monday, private lender IndusInd Bank gave information about its market cap 2.35% due to low assessment of hedging costs related to foreign exchange transactions. One of the sources said, “RBI wants to confirm in the case of banks whether the issue of IndusInd is not part of any major problem.” Sources have asked not to reveal their identity, as they are not allowed to talk to the media. According to Reuters, the RBI has not given any response to the email sent in this case. Before the implementation of new investment criteria for banks from April 1, 2024, banks’ asset liability management and Treasury Desk were allowed to take entry into the internal swap, where one cash flow is exchanged to another.
Also read: Sensex Closing Bell: flat closing after stock market fluctuations; Sensex dropped 72 points, Nifty at 22470
What has the CEO of IndusInd Bank said?
IndusInd Bank CEO Sumant Kathpalia said on Tuesday that due to premature termination of such deals, there was a situation of loss instead of profit. Now, the RBI wants to ensure that banks with heavy foreign liabilities do not fall into a situation where any damage caused by internal hedging done earlier is not calculated.
What was the mess with IndusInd Bank?
IndusInd Bank shares fell 27.06% to falling at Rs 656.80 on Tuesday. The biggest reason for this decline is said to be disturbances in the bank’s derivative portfolio. Due to which the total market cap of the bank suffered a loss of 2.35 percent. This weakened investors’ confidence on the bank and people panicked and started selling the bank shares. Due to this, there was a huge decline in the bank shares.
Also read: Retail Inflation: Retail inflation in February due to falling vegetable prices, came to a seven -month low
What is derivatives portfolio?
Indeed, derivatives are a financial instrument that is fixed by something else. These things can be shares, foreign currency, gold-silver (commodity) or other assets. When a bank or investor invests money in these different things and manages them together, it is called “portfolio”. The same derivative portfolio of IndusInd Bank was found to be disturbed.
Also read: MP Budget 25-26: Earnings more than expenses; Focus on Gyan, understand the full essence of Madhya Pradesh’s budget in graphics
What does hedging position mean?
When a company or bank transactions from abroad (such as borrowing in dollars or buying foreign goods), it can be damaged by the changing price (exchange rate) of the currency. They do hedging to avoid this loss. Hedging means to make security arrangements in advance, so that there is no major loss in future.
(Tagstotranslate) RBI PROBE (T) Indusind Raw (T) Business News in Hindi (T) Business Diary News in Hindi (T) Business Diary Hindi News (T) RBI’s investigation
