In the coming years, this could become a major economic headache for the country. Forward trading in foreign exchange contracts between banks and exporters during the global meltdown has left Indian financial institutions with $2,435 billion notional outstanding, the CBI has told the Supreme Court.
And, the credit equivalent to these contracts, as against an outstanding of $2,435 billion, was a mere $98 billion as on December 31, 2008, the CBI said, adding that RBI was contemplating action for violation of Foreign Exchange Management Act (Fema) regulations.
However, CBI further said the total unrealised dues of 11 banks on account of derivatives contracts were Rs 755.45 crore ($0.16 bn) during April, 2007-December , 2008 period.
The 11 banks which have unrealised dues under the derivatives contracts include ICICI Bank, HDFC Bank, IDBI Bank, HSBC and Corporation Bank.
The RBI is likely to initiate action for violations of Fema regulations and the offending banks will be dealt with in accordance with the extant laws of Forex Derivatives , CBI said.
This was a response to an appeal filed by the Fixed Income Money Market and Derivatives Association of India (Fimmda) through advocate Sanjay Kapoor. The appeal challenged an Orissa HC order directing CBI probe into the derivatives contract scam, terming it a huge scam that could unsettle the country’s economy. The SC had stayed the HC order but had asked CBI, RBI and Enforcement Directorate to submit responses.
The forward trading contracts or derivatives were entered into in 2007-08 , when rupee depreciated against dollar. So, exporters who had earned profit in the past were exposed to losses. The CBI informed the SC that during the investigations it learnt that several exporters of Tirupur,Tamil Nadu, had incurred heavy losses in the forex derivatives contracts.
In its affidavit, the agency quoted the president of Forex Derivatives Consumers Forum of Tirupur, who said the banks induced the exporters to enter into several exotic derivatives contracts by aggressive marketing.
“The extent of unrealised dues to the banks was Rs 755 cr which is not a huge amount so as to cause a big negative impact on the economy,’’ the CBI said. While the agency ruled out any criminal conspiracy, it is also not sure about the losses that may arise in the future when these instruments mature . The CBI said: “The markto-market (MTM) position though indicated major losses suffered by banks/clients, but MTM positions do not reflect the actual unrealised losses and are merely projections of the current positions.’’
Some of the banks under scanner are ICICI Bank, HDFC Bank, IDBI Bank, HSBC and Corporation Bank The RBI may take action for violation of Fema norms Contracts were entered into in FY08, when rupee lost value against dollar. So, exporters who had earned profit earlier were exposed to losses.
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