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RBI asks FPIs to Play in Rate Swap Market Here

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Mint Road appears to be going the extra mile to help strengthen India’s derivative platform that covers interest rate risks, seeking to make overseas participation in the local Overnight Interest Rate Swap (OIS) market operationally easier and viable. “The central bank has asked offshore investors to write their views on the OIS. It is seeking suggestions to bring in operational ease,” one of the two people aware of the move told ET. OIS volumes in India have been traditionally low, with a limited number of domestic banks, bond and fund houses using the platform for occasional hedges or trades. Operational complexities are reportedly blamed for the pronounced absence of offshore investors, and low trading volumes.
An email query sent to the RBI remained unanswered until the publication of this report. In India, OIS trading volumes averaged ?25,938 crore in November, compared with ?22,724 crore in March, showing an increase of 14%, data from the Clearing Corporation of India showed. Globally, OIS trades run into billions of dollars. “Global sovereign funds and assets managers are said to be equally keen to hedge their portfolios, especially when bond yields are fluctuating due to fiscal concerns,” said another person.
The central bank is of the opinion that the OIS market needs to be developed in line with the developed countries as it provides an interest rate hedging tool to overseas investors. If FPIs participate in large numbers, liquidity would increase. “US-based investors, who need to be compliant with stringent US Securities and Exchange Commission norms, look for operational ease whenever they come to any emerging market,” said a senior executive at a bond house. The RBI on Monday met about 40 FPIs for the first time in about five years to gauge overseas investment interest in domestic fixed-income and debt securities.

The Economics Times, 23st January 2019

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