The Reserve Bank of India [Get Quote] may soon tighten the norms for foreign exchange derivatives, amid several banks and companies facing losses with calls on currency movements going wrong.

The norms may require banks to insist on an undertaking from their corporate clients that such deals are being struck only for risk management purposes and not for trading.

The bank may also be empowered to obtain a copy of the corporate clients' risk management practices and approval from the top management for the product before striking the derivative structure.

The central bank may also check the use of exotic structures used by the companies purely for speculative gains and not for hedging their exposures.

These measures, under preliminary discussion with the central bank, come soon after Hexaware Technologies [Get Quote], an IT services company, recently said it was providing Rs 80-100 crore due to losses allegedly on account of foreign exchange transactions fradulently entered into by one of its officials with banks.

In another instance, a small Mumbai-based paper stationery maker, Sundaram Multi Pap, announced it was reneging on its contracts with ICICI Bank [Get Quote], saying the bank had misled the company into taking derivatives positions much beyond its underlying export risks.

Also, the Institute of Chartered Accountants of India has notified a new accounting standard, AS-30, which requires companies to mark to market their losses from derivative deals and disclose them in their balance sheets.

While the ministry of company affairs has made it applicable for the companies to adopt this accounting standard by 2011, the RBI proposes to make it mandatory for the banks by 2008.

According to bankers, this could also indirectly check the use of such speculative structures since banks were unlikely to take a hit by doing deals in which companies have open foreign exchange positions for speculative gains.