To defend rupee, RBI widens forex lens beyond banks to corporate treasuries

With the rupee under pressure from capital outflows and higher crude prices, India’s central bank is expanding its scrutiny beyond banks to corporate treasury positions in the foreign exchange market to assess large arbitrage trades, two bankers familiar with the matter said.According to these bankers, the Reserve Bank of India’s (RBI’s) data call is aimed at assessing the extent of arbitrage exposure with corporate clients, rather than signalling immediate regulatory action.The exercise follows the central bank’s move on 27 March to cap banks’ net open positions in the domestic market at $100 million at the end of each day, which forced several lenders to unwind trades.“Corporates might have to unwind as well if things come to a head,” one of the two bankers cited earlier said, requesting anonymity. Corporate treasuries manage firms’ foreign exchange exposures through hedging to ensure that earnings and cash flows are not hit by currency swings.An email sent to the RBI on the matter remained unanswered till press time.A Jefferies report on 29 March said that the forex derivative market is dominated by larger banks with gross onshore positions of $30-40 billion that largely offset each other.

Banks often buy dollar forwards cheaply in India and sell them at a premium abroad, keeping risks balanced on paper while profiting from the difference.The data-gathering exercise comes after a volatile trading session on Monday, where the rupee weakened despite the new rules aimed at curbing arbitrage and volatility in the currency market.Led by the central bank’s move, the rupee initially strengthened 1.3% to a one-week high of 93.59 per dollar, before reversing course to hit a record low of 95.1250 on Monday. Likely central bank