Thursday, September 10, 2009

RBI ask banks to give details of interest rate swap transactions

Reserve Bank of India officials under the leadership of RBI’s financial markets division Chief General Manager P Krishnamurthy held meeting with several banks officials and told them to provide information of interest rate swap (IRS) transactions carried out with customers on the platform of the Clearing Corporation of India (CCIL).

A banker who was present in the meeting told, “So far, only inter bank transactions were routed through the CCIL”.

A swap dealer informed, “This is done to increase transparency in the IRS market”.

On the other hand banker stated they do not have any clear information on whether under International Swaps and Derivative Association (ISDA) norms banks are allowed to share client information with other entities. Also do banks have to enter any derivative contract as per ISDA norms?

Another banker present in the meeting said, “RBI said they will examine whether there is any legal issue for sharing customer information”.

Swap dealer pointed out however the central bank is trying to screen the domestic swap deals, but there is no plan to stop or control the foreign institutional investors’ approximate participation in the Indian swap market.

Swap dealer added, “There are very few domestic corporates who play in the IRS market like Reliance Industries, L&T. But, the offshore entities contribute to a lot more volume than domestic entities. RBI should clearly articulate that banks should stop offshore play”.

Earlier in May 2008, instability in the IRS market was provoked because of large offshore plays by FIIs through mostly foreign banks.

As per RBI norms banks, primary dealers and mutual funds can contribute in interest rate swaps.

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