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RBI Probe into Unhedged Forex Liabilities of Banks

12 March 20251 min read
BANKING & FINANCERBI Probe intoUnhedged ForexLiabilities ofBanks12 March 2025safalsetu.com

Why in the news

RBI began testing whether hedging lapses seen at IndusInd Bank are isolated or system-wide.

What banks must report

  • Foreign currency liabilities, including FCBR(B) deposits and foreign currency bonds.
  • Hedge effectiveness, forex derivative positions and quarterly testing of hedging strategies.
  • Compliance with hedging rules in letter and spirit.

IndusInd case

PointDetail
Impact2.35% of net worth, about ₹1,600 crore (Q4 FY24)
Exposure3 to 6-year yen and 8 to 10-year dollar borrowings
CauseInternal desks used; swap values differed from mark-to-market
TriggerRBI circular of September 2023

Possible outcomes

  • Tighter hedging rules, closer scrutiny and higher compliance costs for banks.

Exam angle

  • Hedging, mark-to-market, FCBR(B); regulator RBI.

Test yourself

1. RBI's probe into unhedged forex liabilities across banks followed discrepancies found at which bank?

RBI is checking whether IndusInd Bank's lapses extend to the wider system.

2. IndusInd Bank's derivative discrepancies arose because it hedged using what?

It used internal desks instead of hedging with external counterparties.

3. By what share of net worth could IndusInd Bank's derivative discrepancies have an impact, as per its internal review?

The review pointed to a potential 2.35% net-worth impact, about ₹1,600 crore.