Banks blame law firms for 'misguiding' firms on Fx derivatives
Private sector lenders on Tuesday criticised law firms and consultants for wrongly prompting corporates not to meet their payment commitments to banks after the companies started making losses due to volatility in global markets.
Besides, the banks also wanted more finite guidelines from the Reserve Bank on structured derivative products such as interest rate swaps and currency swaps. It is believed that the exposure of Indian banks in forex (Fx) derivative products is Rs 10,000 -15,000 crore.
In derivatives, however, foreign bankers are the major players. The exposure of the public sector banks, barring State Bank of
The private sector banks, which did not want to be quoted, said many law firms acting as intermediaries between banks and SMEs are now taking advantage of the confusions in the foreign exchange and derivatives products market prompting companies not to m eet their obligations and thus to prolong the litigations.
"We have seen many lawyers (of SMEs that made losses in derivative products) prompting their clients not to meet their obligations to banks citing various reasons. It's high time for the Reserve Bank to come out with a more finite guideline on such produ cts," Head of a private sector bank said.
A host of private sector banks such as Axis Bank, ICICI Bank, HDFC Bank, Kotak Bank and Yes Bank are understood to be in legal battles with their corporate clients who question the validity and legality of the derivative products when they started incurr ing losses in derivatives market.
Corporates started making losses following the high volatility and the consecutive widening in spreads in a variety of derivative products such as interest rate swaps and currency swaps. - PTI
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