IDBI Bank Underwrites the First CDS Transaction

IDBI Bank has become the country’s first PSU Bank to underwrite a Credit Default Swap (CDS) transaction in the domestic market for managing credit risks associated with Indian Corporate Bonds. This is the first transaction of its kind entered by any public sector bank with another bank in India on selling protection in the domestic market on Corporate Bonds.

Reserve Bank of India had issued prudential guidelines on CDS transactions on Corporate Bonds on November 30, 2011. These guidelines refer to CDS transactions underwritten by Indian operations of foreign banks, Indian banks and overseas branches/subsidiaries/joint ventures of Indian banks.

Commenting on this historic transaction, Mr. Melwyn Rego, Executive Director, IDBI Bank said, “IDBI Bank has always been in the forefront for launching novel financial products. This important initiative by the Bank would lead to widening of domestic Corporate Bond for a better price discovery for Indian companies.”

“The launch of CDS market in India will encourage foreign institutional investors to invest in domestic Corporate Bonds to provide much needed funding for the projects, including infrastructure sector” added Mr Rego.