Axis Bank chief welcomes apex court ruling on derivatives


Axis Bank Chief Shikha Sharma today welcomed Supreme Court's ruling that banks are entitled to declare as a wilful defaulter any person who did not pay dues under a foreign exchange derivatives contract, saying this would help industry's cause in offering hedging products.

"I think its a good judgement which is fair to both sides and helps the cause of allowing banks to offer these hedging products to customers," Sharma told reporters on the sidelines of a product launch here.

Foreign Exchange derivatives contract are instrument used to hedge financial risks. Banks sell these instruments to companies to hedge risks against fluctuations in foreign exchange value and interest rates in lieu of a fee.

Several companies suffered losses on derivatives contracts because of unforeseen fluctuations in foreign exchange values during the global financial crisis in 2008.

Later, some claimed they were mis-sold these products by the banks without explaining the risks attached with such instruments and also moved the courts to recover losses.

Some companies said since a derivatives contract was not a loan, they could not be categorised as wilful defaulters even though there were outstanding amounts against such contracts.

"I think its a good ruling because if money is due to the bank and there is a valid derivative transaction which both parties have entered into...there is a loss, money is given to the bank," she said.

Sharma said derivative transactions cannot be one-sided in nature where customers wants to keep the profit but not bear the loss.

"Just in case if there would have been a profit, the client would have definitely told the bank for payment of profit," she said.

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