Indian banks start trading in non-deliverable forward mkts for first time

RBI in the past was against this market, but gave way when it was found that the offshore volume in rupee trading is actually higher than the onshore volume

Foreign branches of Indian banks and those located in the International Financial Services Centre (IFSC) in GIFT City traded in non-deliverable forwards (NDF) for the first time on Monday.

The RBI in the past was against this market, but gave way when it was found that the offshore volume in rupee trading is higher than the onshore one. 

There was no statement yet from IFSC on the first day trade, but some of the banks spoke on condition of anonymity.

 

Bankers said the volume generated in IFSC was not as high as expected as banks were not equipped with adequate systems and processes, and manpower amid a lockdown. The trading desk is not the same as the local unit. Importantly, the foreign branches entering into NDF trading are regulated by the countries where they are based of, and data dissemination may not be on a real-time basis. Besides, the presence of banks in IFSC makes them technically offshore. The branches there have no reserve ratio requirements like their parents incorporated in other parts of India.

“What it enables though is taking part in any arbitrage opportunity. And it now allows the RBI to intervene in these markets through these banks. Earlier, the RBI used to take services of other central banks,” said the head of treasury of a foreign bank. As the rupee closed at 75.55 a dollar on Monday, the NDF markets also reflected a similar level.