Bangalore: Banks have made it compulsory for its customers to have forward cover for disbursement of foreign currency loans to corporates in a bid to contain unhedged exposures.

Sources say several corporates, both medium and large, had availed of foreign currency non-resident (FCNR) loans in a bid to restrict their interest liabilities. FCNR is currently being advanced at rates of around 350 basis points over the London inter-bank offered rate (Libor).

With Libor at less than 2 per cent, the costs of these loans for borrowers worked out to less than 6 per cent. This is less than half of the costs of borrowing in rupee funds.

The sources add that most of these corporates had preferred to keep such exposures unhedged. This was given the rupee's appreciation against the dollar and euro.

The rupee has appreciated by at least 6 per cent against the US dollar during the last one year. Against the euro, it has firmed up by 9 per cent during the last six months.