Nabfid takes derivatives cover for over Rs 10K cr to hedge rate risk

Hedges interest rate risk under asset liability management

The National Bank for Financing Infrastructure and Development (Nabfid) has taken derivatives cover for more than Rs 10,000 crore to hedge the institution against interest rate risks. These risks emerge from the fixed rate long-term liabilities debentures and annual reset for loans which would increase uncertainty.

The government-owned infrastructure funding institution raised about Rs 19,516 crore in nine months ended December 2023 through debentures. Out of it, Rs 10,000 crore had a tenor of 10 years and Rs 9,516 crore had a tenor of 15 years.

Rajkiran Rai G, managing director, Nabfid told Business Standard that the institution has entered into interest rate swap and Total Return Swap (TRW) arrangements to manage risks from interest rate movements. As a part of asset liability management, the bank has entered into a rupee interest rate swap of a notional amount of Rs 5,000 crore against underlying financial instruments.

The interest rates, in his view, have peaked and are likely to decline by 50-100 basis points over two years. While Nabfid’s one-year lending rate was 8.0 per cent, the annual coupon on 10-year non-convertible securities is 7.43 per cent. This coupon rate is fixed over the maturity period (10 years).

The Indian government infused a capital of Rs 20,000 crore in FY22. It also provided a grant of Rs 5,000 crore to the institution in FY22 which has been invested in the fixed deposits. The interest earned on the grant amount is utilised to reduce the lending rate.

Referring to the lending and loan pipeline, Rai said this first full year of operations and disbursements stood at over Rs 21,000 crore till December 2023 and sanctions were close to Rs 65,000 crore. In June 2023, the lender had indicated that it would be able to sanction Rs 1 trillion loans for infrastructure projects this year (FY24).