By Nimesh Vora and Siddhi Nayak
MUMBAI (Reuters) – The Reserve Bank of India’s three-year dollar-rupee swap is expected to attract significant interest from companies seeking to hedge long-duration dollar liabilities and from lenders looking to raise rupee funds, according to six bankers.
Under the swap, the Reserve Bank of India will buy $10 billion and inject an equivalent amount of rupees next week, and reverse the move in three years. Bids are due on Friday.
The swap is part of the RBI’s measures to bolster rupee liquidity in the banking system and follows an oversubscribed $5 billion six-month swap late last month.
The longer tenor in the new swap is not expected to impact demand.
“There will be strong demand for the swap across the Street. Foreign banks would be there and corporates would definitely be interested in a three-year duration,” said Vikas Jain, Bank of America’s head of India fixed income, currencies and commodities.
Corporates with foreign currency liabilities and loans will likely be the main takers and for banks, the motivating factors would be access to long-term rupee liquidity or taking/unwinding tactical position, said Akshay Kumar, head of global markets, India, BNP Paribas.
He expects a near 2x bid-to-cover ratio for the auction.
Banks will submit bids in terms of the premium they are willing to pay expressed in paisa terms. The 3-year dollar-rupee forward was at 6.80 rupees/7.00 rupees.
BNP’s Kumar reckons the cutoff “will be in line with market-traded levels, with a small tail of 2-3 basis points”.
Sameer Karyatt, executive director and head of trading at DBS Bank India, agreed and noted the market adjustments since the swap was announced last Friday have made it particularly attractive for companies with external commercial borrowings to hedge their exposure.
A large Indian conglomerate is expected to bid aggressively at the swap auction, said two bankers who did not want to be named as they are not authorised to speak to the media.
(Reporting by Nimesh Vora; Editing by Savio D’Souza)
