Forex trading rules eased for SMEs
In a move that will help the SME segment hedge their foreign exchange risk in a better way, the RBI has allowed them to buy and sell dollars without showing any proof of order book.
By TNN |
In a move that will help the SME segment hedge their foreign exchange risk in a better way, the RBI has allowed them to buy and sell dollars without showing any proof of order book.
On Tuesday, RBI allowed the companies categorised as small and medium enterprises (SMEs) to book forward contract without underlying exposures or any past records of export or import. The SMEs are also permitted to freely cancel and rebook the contracts.
Given the current volatility in the forex market where the rupee has been moving in a range of 20 to 50 paise in a day, the importer or the exporter may lose an opportunity to buy or sell foreign currency only because paper related to its order book are not complete. An advance movement of even one paise can result in a loss of Rs 10,000 for an exposure amount of $1 million.
This will reduce paper work and help SME segment to mitigate risk on account of volatility in the forex market. Banker said an exception is made for the SME segment because it is believed that this segment would be not speculating on the currency given the small scale of activity.
According to country representative of ABN Amro Bank Romesh Sobti, “This sector needs to understand the risk. The move will enable SME sector in understanding and hedging the risk. Bank have a responsibility for creating an understanding of the risk and providing instruments of hedging the risk.”
RBI has also urged to review their institutional arrangements for delivering credit to the SME sector. RBI has asked banks to identify clusters and provide adequate and timely credit to such clusters.
RBI has also asked banks to strengthen systems at branches located near such clusters. Meanwhile, guidelines covering restructuring of exposures to SMEs by banks are being reviewed and modified.
On Tuesday, RBI allowed the companies categorised as small and medium enterprises (SMEs) to book forward contract without underlying exposures or any past records of export or import. The SMEs are also permitted to freely cancel and rebook the contracts.
Given the current volatility in the forex market where the rupee has been moving in a range of 20 to 50 paise in a day, the importer or the exporter may lose an opportunity to buy or sell foreign currency only because paper related to its order book are not complete. An advance movement of even one paise can result in a loss of Rs 10,000 for an exposure amount of $1 million.
This will reduce paper work and help SME segment to mitigate risk on account of volatility in the forex market. Banker said an exception is made for the SME segment because it is believed that this segment would be not speculating on the currency given the small scale of activity.
According to country representative of ABN Amro Bank Romesh Sobti, “This sector needs to understand the risk. The move will enable SME sector in understanding and hedging the risk. Bank have a responsibility for creating an understanding of the risk and providing instruments of hedging the risk.”
RBI has also urged to review their institutional arrangements for delivering credit to the SME sector. RBI has asked banks to identify clusters and provide adequate and timely credit to such clusters.
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RBI has also asked banks to strengthen systems at branches located near such clusters. Meanwhile, guidelines covering restructuring of exposures to SMEs by banks are being reviewed and modified.
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