Banks should be allowed to hedge their exposure to commodities: BC Khatua

MUMBAI: BC Khatua, former chairman of Forward Markets Commission (FMC), regulator of commodity futures market, said banks should be allowed to hedge their exposure to commodities through crop loans and by importing gold into the country.

His comments come at a time his successor Ramesh Abhishek has been trying to convince top finance ministry officials on the benefits of allowing banks to participate as hedgers on the market.

“Allowing banks to hedge is one thing and having them trade on commodity markets as a treasury function is quite different,” said Khatua a retired IAS officer of the Maharashtra cadre. “The former will actually help them in the event of a client default while the latter is desirable only when the FMC becomes autonomous.”

To get banks hedge themselves on commexes requires a change in the Banking Regulation Act, which currently forbids banks from trading in commodities.

The commodity futures market was launched in 2003 after an almost three decade ban on forward trading. Turnover of five national level exchanges and 16 regional bourses jumped to Rs 131 lakh crore in the financial year through December 15, up 67% from the corresponding period last year.

Khatua currently functions as a director, Mumbai Transport Unit, part of the All India Institute of Local Self Government.