Derivatives houses in India, including Deutsche Bank and JPMorgan, have held informal talks with the Reserve Bank of India with hopes to launch interest-rate options. "There's a need for these products," said Rajiv Baruah, co-head of Indian global markets at Deutsche Bank in Mumbai. He added that the regulator could allow them in six to 12 months. Srinivasan Varadarajan, treasurer at JPMorgan in Mumbai, agreed that the options could be introduced next year. Investors would likely use the options to reduce hedging costs with caps, floors and swaptions. Baruah noted that a year or two after the products launch, the market could rival the current size of the interest-rate swap market. Varadarajan estimated the swaps market to be USD40-50 million per day, but said that had doubled over the last month as investors convert their bond holdings to floating notes.
"Surely we would be interested," said Jitendra Jain, fund manager at Reliance Capital Asset Management in Mumbai, commenting on interest-rate options. He said the fund manager, with INR14.7 billion (USD302 million) under management, would use the options to reduce interest-rate risk, diversify its portfolio and enhance its yield. Reliance Capital has been using interest-rate swaps for its fixed-income portfolio since last fall (DW, 10/28).
Usha Thorat, chief general manager of the internal debt management cell at the Reserve Bank of India in Mumbai, said callable and puttable bonds are currently allowed, which contain embedded options. As for interest-rate options, she said it could take some time before they are available, declining to elaborate.
