Regarding the article “Policy on ECBs needs to change” (Business Line, September 27), an important issue is the impact of exchange rate movements on foreign currency borrowing. The recent decline in the rupee has increased the outgo on unhedged foreign currency borrowings. It would also be correct to ensure that the corporates have a dynamic risk management in place and do not leave it to the banks to advise them. Further, proper hedging techniques would need to be invoked by the corporates. The RBI should also insist on some form of disclosure of their compliance by corporates, as to their hedging / risk management techniques. However, if the foreign exchange borrowing is adequately hedged, the cost differential with the local currency borrowing will not be advantageous. The RBI would need to take a call on exposing the corporates, and consequently the country, to the Damocles sword of exchange rate fluctuations.
Srinivas (HBL)
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