Loved by banks, bond trade worth Rs 2 trn faces scrutiny from RBI

Traders argue that the transactions are structured as so-called forward rate agreements, which are permitted by the RBI, allowing them to clear internal compliance checks

India’s banking watchdog is examining a lucrative bond trade between banks and insurance companies that’s swelled in popularity in recent months despite being in a regulatory grey zone, according to people with knowledge of the matter.

Lenders including Citigroup Inc., Standard Chartered Plc and JPMorgan Chase & Co. have been buying long-tenor sovereign bonds that they then agree to sell to insurers at a specified price after about five years in a forward contract, the people said, declining to be named as they aren’t allowed to speak with the media.

Traders estimate that there are currently about 2 trillion rupees ($26 billion)