Comments
The Reserve Bank of India on Monday amended the eligibility criteria for the users of Over the Counter (OTC) foreign exchange derivatives in order to overhaul the risk management practices.
In a notification, the RBI said that listed companies and their subsidiaries/joint ventures/associates having common treasury and consolidated balance sheet or unlisted companies with a minimum net worth of Rs 200 crore would be permitted the use OTC derivatives.
In the earlier guidelines, unlisted companies with a minimum net worth of Rs 100 crore were allowed to use OTC derivatives.
According to the treasury official of a public sector bank, the RBI wants only those companies which are in a position to take a loss to take part in the OTC derivatives market, given the potential risks.
“The RBI has done this to ensure good risk management practices,'' he said.
According to the notification, companies which use these cost reduction structures should also follow certain other conditions.
The RBI said that all such products should be fair valued on each reporting date, companies should have a risk management policy with a specific clause in the policy that allows using the type/s of cost reduction structures, disclosures should be made in the financial statements, and companies should follow the principle of prudence which requires recognition of expected losses and non-recognition of unrealised gains.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.