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RBI relaxes forex derivatives accounting norms

Posted by Yogesh on Wednesday, 29 October, 2008

MUMBAI: The Reserve Bank on Wednesday relaxed the accounting guidelines for valuing derivatives, a move that will help the Indian banks with overseas branches to post better financial results.

“It has now been decided to confine the applicability of the principle of borrower-wise asset classification to only the overdues arising from forward contracts and plain vanilla swap and options”, the central bank said, while modifying its earlier notification for off-balance sheet exposures of banks.

Under the borrower-wise classification norms, all other funded facilities given to a defaulting clients are required to be shown as non-performing assets (NPAs)

Earlier, the RBI had said borrower-wise classification norms will apply to all funded facilities of a client if the receivables representing mark-to-market value of a derivative contract remains unpaid for over 90 days.

With the modification of the earlier circular, the unpaid amount towards foreign exchange derivatives contract entered between April 2007 and June 2008 will have to be parked in a separate account in the same of client.

RBI further said that amount overdue for more than 90 days will not make other funded facilities provided to the client as NPA as per the borrower-wise asset classification principle.

“The relaxation will also be applicable to the foreign branches of Indian banks,” the RBI said. Source The Economic Times

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