These original deals, as ET had recently reported, were derivatives contacts with banks where corporates had bet that euro will weaken (or, at least not rise too quickly) against the dollar. Say, a company has entered to a three-year derivatives contract, where it has agreed to sell e1 million at an exchange rate of $1. Now, mark-to-market clause forces the company to show m2m losses at the current market price even if two more years are left for the derivatives contract to expire. According to banking circles, there are indications that Reserve Bank of India will do an inspection of treasuries of large banks, Indian as well as foreign, to assess the extent of such derivatives positions. A few public sector banks who are not exactly experts in derivative products may have been used as routing banks by some of the international players who don?t have a licence to deal in foreign exchange in India. In some cases the corporates are blaming PSU banks for having sold complex, inappropriate financial products which are now hurting, in the market parlance, positions that have turned ?out of money?. read more
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