RBI executive bats for more options instruments

MUMBAI: RBI executive director - G Padmanabhan has proposed more options instruments to trade in currencies and calls for shifting more of other currency debt into rupee debt.

“There is a need to appropriately incentivise the move away from foreign currency debts to Rupee debts even as the position in respect of overall indebtedness in prudentially managed,” he said at the Foreign Exchange Dealers Association of India Conference at Brussels on April 3.

“We propose to pursue this matter further in a calibrated manner.”

The motivation for this, according to Padmanabhan, is that there is a growing concern these days about the risk of unhedged forex exposure in the books of corporates.

At a micro level, individual entities may well be able to tide over any exchange rate stock, but at a macro level when everybody scurries for cover, the market impact may be unsettling, he said.

Advocating the cause of hedging Padmanabhan explained, the Rupee has been depreciating at about 5% per year whereas the cost of a swap now is about 6-7%.

This surely acts as a disincentive. There is a need to align individual incentives with that of the system.

“Use of options and what is called option trading strategies can contribute in this and therefore, the regime has to consider permitting this.”