Half of India Inc forex exposure unhedged

This was the situation at the end of March and since then,the rupee has slipped by more than 11 per cent.

The Reserve Bank of Indias (RBI) central board is expected to discuss next week the elevated levels of unhedged foreign currency exposure at private and state-owned companies,which has made them increasingly vulnerable to the sharp depreciation of the rupee.

According to data submitted by the Reserve Bank of India (RBI) to the finance ministry,approximately 60 per cent of companies non-trade related exposure is unhedged,while the proportion of uncovered exposure for trade loans is lower at 40 per cent.

This was the situation at the end of March and since then,the rupee has slipped by more than 11 per cent.

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Corporates have been reluctant to protect themselves against currency fluctuations despite RBI attempts,sources said.

One reason companies have been deferring hedging their foreign currency exposures is the rise in forward premiums.

From around 2 per cent for a six-month forward cover in July last year,the premium jumped to around 7 per cent last month. Since then,forward premiums have fallen somewhat to around 6-6.5 per cent,thanks to RBI intervention.

The quantum of external commercial borrowings (ECB) due for repayment this year is around $9 billion. In addition,companies would need to pay around $11 billion next year.

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Over the past six months,the central bank has taken several measures to bolster the countrys foreign exchange reserves currently at around $293 billion.

The central bank also eased guidelines for foreign currency convertible bonds (FCCBs).

FCCBs worth approximately $2.5 billion are due for conversion between May and July out of the $6 billion due in 2012-13.

Indian companies raised $35.96 billion through ECBs and FCCBs in 2011-12 compared with $25.77 billion in 2010-11 as per RBI data.

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The trade-related exposure,which does not include exposure towards overseas loans,is not more than 50 per cent of all foreign currency loans, officials said.

Several state-owned companies,especially in the petroleum sector,have a large portion of foreign currency exposure unhedged.

Oil companies such as IOC,HPCL and BPCL,which need to make purchases of oil in dollars,are therefore particularly vulnerable. Oil importers lose roughly Rs 8,000 crore a year,for every rupee of depreciation.