document.writeln("

RBI: Corporates can hedge commodity price risks with stronger banks
Mumbai: The Reserve Bank of India (RBI) on Saturday gave banks, which meet certain financial criteria, the power to permit listed companies to hedge the price risk of commodities with them. The move will allow listed corporate entities to hedge their commodity price risks with stronger banks.

While steel and non-ferrous players can take advantage of the new norms, commodities like gold, silver, petroleum and petroleum products are excluded from the list.

The RBI has said that banks that have a three-year profitability record, minimum capital adequacy ratio of 9%, net bad loans of less than 4% to advances and a minimum net worth of Rs300 crore will be allowed to grant listed corporate entities the permission to hedge price risk of commodities. These banks, though, will need to take RBI approval before granting corporate entities the approval to hedge their risk.

Corporate entities will need to provide banks a board resolution indicating that the board understands the risks involved in these transactions, nature of hedge transactions that the corporate would undertake during the year, and the company would undertake hedge transaction only where it is exposed to price risk.

Banks can refuse to undertake any hedge transaction if it doubts the bonafides of the transaction or if the corporate is not exposed to price risk. RBI has further clarified that hedging the price risk on domestic sale or purchase transactions in the international exchanges or markets is not permitted, even if the domestic price is linked to the international price of the commodity.

The guidelines also said that corporate entities should not undertake any arbitrage or speculative transactions, and the responsibility of monitoring transactions will be with banks.
Back to News Review index page  

Assocham study: Banking sector's earnings under pressure
New Delhi: An Assocham study says that the banking sector has come under pressure, both in terms of operating profit margin and net profit margin, despite a 30% increase in non-food credit off take in the first quarter of the current fiscal.

The study covered eight banks, including the Corporation Bank, Allahabad Bank, HDFC Bank, Bank of Punjab, Centurion Bank, Lakshmi Vilas Bank, UTI Bank and State Bank of Bikaner and Jaipur.

The results of the April-June quarter this year suggested that the net profit of these banks have declined owing to a sharp decline in treasury gains and their foreign exchange assets, the study says.

However, among these banks, UTI and HDFC banks were the top performers, registering handsome growth rates in terms of interest earned and net profit. The Bank of Punjab, which recently merged with Centurion Bank, showed the worst performance.

The net foreign exchange assets of the banking sector have slumped to Rs6,34,660 crore during April to June 2005 compared to Rs6,49,255 crore in the corresponding period last year.
Back to News Review index page