RBI modified and consolidated guidelines for banks on

Solution

The Reserve Bank modified and consolidated guidelines for banks on unhedged foreign currency exposures of any entity to prevent losses due to heightened volatility in the forex market. The RBI has, from time to time, issued several guidelines, instructions and directives to the banks on Unhedged Foreign Currency Exposure (UFCE) of the entities, which have borrowed from banks. In the wake of a bank seeking clarification on various aspects related to UFCE, the RBI announced that a comprehensive review of the extant guidelines has been undertaken and all the existing instructions on the subject have been consolidated.These instructions shall come into force from January 1, 2023.In an explanatory note, the RBI explained unhedged foreign currency exposure of any entity is an area of concern not only for the individual entity but also for the entire financial system.