The Hindu Business Line : Few takers for exotic forex derivatives now

Mumbai, April 7 Banks have seen a sharp slowdown in ‘exotic’ forex derivative deals in the last three months. While these structured products are specifically meant for risk management, many companies had been making profits from such transactions, until the dollar weakened substantially against low interest rate currencies such as yen and the Swiss franc.

“In the last three months, there has been a complete slowdown. We used to do an average of two deals a day, but now we don’t see any demand for such products,” said the treasury chief of a private bank that was an active player in the currency derivatives segment.

Bankers were unwilling to be on record as there are cases related to derivative deals pending in the court.

It is not just that the corporates’ risk appetite has diminished; banks too have stopped aggressive marketing of such products. After being dragged to court by corporates, banks have stopped pushing them.

But a banker quoting Mr Christopher L. Culp, an expert on derivatives, said, “Blaming derivatives for financial losses is akin to blaming cars for drunken driving fatalities.”

No impact

Complex or exotic derivatives account for not more than 5-10 per cent of the total forex transactions. Bankers say this slowdown will not impact their treasury income. The demand for plain vanilla swaps, dollar-rupee options, however, continues to be very good. “No fresh positions are being taken other than to mitigate the risk in earlier positions,” said another treasury head.

Another bank official said that most of its clients are coping with the management of risk on their existing positions.

A recent Ernst & Young survey reports that 44 per cent of Indian corporates have exposure to exotic derivatives.