The Reserve Bank of India recently tweaked some of its guidelines for banks to manage their foreign currency exposure. This was to reduce the risk of unhedged exposure on the banking system during extreme volatility in forex markets. Banks are required to assess the unhedged foreign currency exposures of all counterparties to whom they have an exposure in any currency. They are also expected to determine the potential loss to an entity from unhedged foreign currency exposure. If the potential loss is more than 75%, banks would need to provide for a 25 percentage point increase in total risk weight, over and above the applicable risk weight to that entity.