India Banking Policy: What The Heck?

Banks told to bear half of exporter’ forex losses

Speaking to ET, a commerce department official pointed out that many exporters did not fully understand the exotic derivatives products and banks were also responsible for the losses. “We have proposed that losses should be split between the exporter and the bank,” the official said.

This is a terrible precedent.  Responsibility is being shifted from the decision maker:

1. If the derivative had gone in favor of the exporter, would the gains have been shared?
2. Exporters now know they do not need to understand the risks and they will not hire appropriate people.
3. Banks will think twice about this business in the future, many companies that need to hedge will be left in the lurch.

What is next? If you can bail-out sophisticated business houses from bad hedging decisions, what about the individual investor? He/she can claim not to have understood the risk in the equity markets, after all P/E ratios, put/call parity, futures and options, leverage are fairly complex ideas.  Should brokers/securities houses share the losses of the individual investor?

Seems reasonable given this administration’s mindset.

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