MUMBAI, Jan 15 (Reuters) - The Reserve Bank of India announced new rules for setting incremental provisioning and capital requirements for bank exposures to entities with unhedged foreign currency exposures.
The provisioning rule requirements will be calculated as per the ratio of likely loss due to foreign exchange movement to a company’s earnings before interest and depreciation (EBID), the RBI circular said on Wednesday.
“These guidelines have been framed keeping in view the domestic borrowers’ vulnerability to the foreign currency exposure,” the central bank said.
Banks have to monitor unhedged forex exposures on a monthly basis and calculate the incremental provisioning and capital needs at least once a quarter. However, during periods of high rupee volatility, it may be done at monthly intervals, the RBI said.
The new rules take effect from April 1.
Reporting by Neha Dasgupta and Subhadip Sircar; Editing by Prateek Chatterjee