...........RBI has suggested a methodology for estimating the potential losses. A bank would calculate net forex exposure of a corporate client and then assume the worst rupee fall versus the US dollar, based on data over the last 10 years. The bank would then state that loss as a percentage of the corporate client’s earnings before income tax and depreciation, and that figure would dictate the provision needed. The additional capital requirement may see a corporation’s borrowing cost increase 20 bp to 130 bp. RBI may well require banks to make the calculations every quarter, and even on a monthly basis in volatile times. The central bank rules, once implemented, may force corporations to hedge their exposure especially because the rupee is expected to remain relatively week for some time.............
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