Mumbai: The Reserve Bank of India (RBI) on Thursday said that banks should encourage the hedging of commodity price risk by large agricultural borrowers because of volatile commodity prices.

“Banks provide a number of credit facilities to customers engaged in activities related to agriculture. Volatility in agricultural commodity prices may negatively impact such borrowers and the banks. Hence, hedging of agri-commodity price risk will be beneficial to both the borrowers and the banks,” RBI said.

The central bank said that banks must encourage large agricultural borrowers such as agricultural commodity processors, traders, millers and aggregators to hedge their commodity price risk by using agri-commodity derivative products available on recognized exchanges in India.