RBI asks lenders to widen scope of reporting offshore swap trades

By Bhaskar Dutta and Saikat Das

   

India’s central bank asked lenders to widen the scope of reporting offshore interest rate derivative trades as it seeks to better manage overseas flows, according to people familiar with the developments.

 

The Reserve Bank of India has requested foreign banks operating in India to report details of all offshore trades involving rupee interest rate products, the people said, adding the disclosure would help enhance oversight of client positions. Currently, not all offshore trades are reported, especially those carried out by overseas lenders with offshore clients outside of India market hours, they added.

 

Senior RBI officials recently met with several lenders, asking them to increase reporting of non-deliverable overnight index swap rates to the central bank or the clearing house it supervises, the people said, asking not to be identified as the mater is private.

 

The discussions come as offshore trading of Indian financial instruments grows, with daily average offshore dollar-rupee trades tripling to $46 billion in 2022, according to the most recent triennial survey from the Bank for International Settlements. The central bank is looking to bring these trades onshore, partly to reduce the divergence in rates between the two markets and limit volatility in local markets, they said. 

 

An email to the central bank seeking comment on the matter went unanswered. The central bank’s October report noted the growth of the offshore derivatives markets and the “wide variation” between overseas and onshore rates.

 

NDOIS are over-the-counter interest rate derivatives settled based on exchange rate differences rather than actual currency delivery. Some offshore investors prefer these instrument to bet on the direction of Indian interest rates rather than the onshore market, which is under the RBI’s oversight.

 

In 2019, the RBI allowed overseas investors into India’s rupee interest rate swap market via foreign-currency settled OIS contracts, benchmarked to the Mumbai Interbank Outright Rate. All such trades are to be reported to the Clearing Corp. of India.