SBI Funds Management, an Indian fund manager with INR29 billion (USD624.9 million) in assets, is planning to use its first Indian rupee interest-rate swap this quarter ahead of expected interest-rate movements in India. It is looking to use fixed-to-floating interest-rate swaps on its bond portfolio, now that interest rates appear to be on the rise, said P.K. Das, v.p.-debt in Mumbai. Some 99% of SBI's INR17 billion fixed-income portfolio is fixed-rate, he said, noting that there is not a well-developed floating-rate bond market in India. Corporate bonds make up over 75% of the portfolio, while the rest are government bonds, he said. The average maturity on the bonds is just below three years, and the average coupon is 11-11.5%, he added. Currently overnight call rates, the most established floating rate benchmark in India, stand at nearly 10%.
SBI first saw the potential benefits of using interest-rate swaps last July when the Reserve Bank of India hiked interest rates, Das said. Since then it has been studying possibilities for using swaps and discussing the product with banks, he said. It is currently preparing International Swaps and Derivatives Association documentation, and is deciding whether to sign contracts under English or Indian law, he said, noting that this has become an issue that many derivatives users have to address.
The asset manager has spoken to a number of banks, including Citibank, HSBC and Standard Chartered Bank. It hopes to use each of these three as swap counterparty at some point in the future. It will select banks mainly on the basis of price, Das said.
