The report of an attempt by a bank recently to initiate the process of auctioning a textile unit in operation, which had suffered losses by purchasing the “exotic forex derivative” products sold by banks in 2007, has brought back the focus on the derivatives issue in the knitwear town.
About 35 exporters in Tirupur had collectively lost Rs. 400 crore after purchasing the “exotic forex derivative products” offered by some banks to hedge against the risk of foreign exchange rate fluctuations.
The exporters plan to approach the Enforcement Directorate seeking inquiry into the sale of the said derivatives and also on the steps taken up by banks subsequently on the exporters, say industry sources. “The Reserve Bank of India has slapped fines on 19 banks on April 28, 2011 for non-compliance of its instructions during the sale of derivatives,” C. Anand, an apparel exporter running Renaissance RTW Asia Private Limited told The Hindu .
Derivative losses
“In some instances, derivative losses were debited from exporters’ bank credit limit despite RBI’s instructions to park any amount related to derivatives in a separate account,” pointed out S. Dhananjan, consultant to Forex Derivative Consumers Forum, formed of aggrieved exporters.
