Report interest rate swap deals, RBI tells banks

Reserve Bank of India officials today met several banks and asked them to report interest rate swap (IRS) transactions made with customers on the platform of the Clearing Corporation of India (CCIL).

“So far, only interbank transactions were routed through the CCIL,” a banker who attended the meeting said.

The meeting was chaired by RBI’s financial markets division Chief General Manager P Krishnamurthy. “This is done to increase transparency in the IRS market,” said a swap dealer.

However, there was some confusion on whether the norms under International Swaps and Derivative Association (ISDA) allow banks to share client information with other entities, the banker said. Banks have to enter any derivative contract as per ISDA norms.

“RBI said they will examine whether there is any legal issue for sharing customer information,” said another banker who attended the meeting.

Though the central bank is trying to monitor the domestic swap deals, there is no initiative to stop or control the foreign institutional investors’ roundabout participation in the Indian swap market, swap dealers said.

“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,” said the swap dealer.

In May 2008, volatility in the IRS market got aggravated due to large offshore plays by FIIs through mostly foreign banks.

According to RBI norms, banks, primary dealers and mutual funds can participate in interest rate swaps.