Faced with incremental provisioning and capital requirements, banks may up their lending rates to companies with un-hedged foreign currency exposure (UFCE).Beginning April 1, 2014, banks are required to set aside capital to deal with the ripple effect arising from the reduced capacity of companies with UFCE to service loans during times of adverse/volatile currency movements.“For no fault of theirs, banks are being penalised for the un-hedged foreign currency exposure of companies. So, to minimise the impact of the RBI directives in this regard, banks have no choice but to increase the lending rates for such companies,” said a senior Central Bank of India official.

Source - http://www.thehindubusinessline.com