Nationalized banks in India, which make up roughly 80% of the country's banking sector, are starting to show interest in long-dated Indian rupee interest-rate derivatives for the first time, said Tarun Mohrotri, treasurer at HSBC in Mumbai.
Bank of Baroda, which is believed to be the first and only nationalized bank to enter a longer-dated transaction, recently completed a five-year swap with ICICI, a finance company in Mumbai. In the INR250 million (USD5.3 million, notional) transaction, ICICI paid a fixed rate, according to an official close to the firm.
Since the completion of this deal, Mohrotri said local banks are "exhibiting more confidence." The nationalized banks, which are conservative in nature, have now started to show a strong interest in entering swaps.
An interest-rate derivatives trader at a rival firm in Mumbai noted banks are showing interest in swaps to manage maturity mismatches on their balance sheets; long-dated assets with shorter-dated liabilities. He continued that interest also stems from a lengthening yield curve, as the Indian government just issued another tranche of 20-year paper.
