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Our Bureau

New Delhi, Sept. 7 Forex Derivative Consumers Forum (FDCF), a grouping of SME exporters from Tirupur, has sought regulatory intervention to annul all exotic derivative contracts sold by banks to SME exporters in the country.

This plea to the Reserve Bank of India has come in the wake of many SMEs facing huge losses due to the currency downsides in their exotic derivative contracts entered with banks.

The forum contends that banks, mainly private sector banks, were “mis-selling” exotic derivative products to SMEs, who were neither schooled in the high world of financial derivatives nor were familiar with the risks involved.

In Tirupur alone, the forum has found that there were about 27 SME exporters, mainly partnerships, who had a mark to market loss of about Rs 400 crore.

On a national scale, losses suffered on exotic derivatives by SME exporters in places such as Tirupur, Karur and Ludhiana due to adverse currency movements on their account was estimated to be about Rs 2,000 crore.

“We have petitioned the RBI to annul the contracts and restore status quo ante. Our plea is that banks did not respect the RBI guidelines in finding out the suitability. The onus is on the banks to explain the risks and find out if the SMEs have understood the risks,” Mr Raja M. Shanmugham, President, FDCF, told a press conference here.

Mr Shanmugham also said that SMEs were even ready to return the profits that they made initially in derivative transactions.

“We have requested for ‘no profit no loss’ situation. We are ready to return all the profits made, if any. But we don’t want huge losses to be booked on to our account,” he said.

Representatives of Forum met the Finance Minister, Mr P. Chidambaram, here recently and sought the Government’s intervention in the matter.

Mr Chidambaram is understood to have made it clear that Government cannot make good the losses or intervene, but promised to forward the Forum’s memorandum to the RBI.

Some derivative experts even suggest that RBI guidelines themselves are vague and that there was no explicit mention as to whether banks can sell exotic derivatives to SME partnerships or not.

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