New Delhi: Foreign banks have been forced to release a surge in currency trading that benefit billions of dollars on the orders of the Indian central bank, according to people with knowledge of this issue.
The problem in the focus is the busy exchange of currencies involving banks that convert Rupee denominational deposits to dollars which are then used to buy foreign national debt including the US Treasury, which is not registered in India.
The Reserve Bank of India warned the banks of violation of regulations last week, by saying they had to limit their ownership of unlisted securities to no more than 10% of investment classified as a non-mandatory liquidity ratio portfolio.
Some lenders have extorted exposure to more than $ 1 billion each by using the rules made in February to change the rupee deposits to dollars using buying and selling swaps – buying the greenback now while selling the same amount on the date specified in the future .
They then used the results to buy US government debt and received profits from arbitration, paid around 3.5% on local currency deposits and produced 4.9% in the results of 12 months on a currency pair.
As the largest buyer of the greenback in the market forward, RBI effectively funds several trade advantages.
The central bank, as part of the intervention strategy, has offset the purchase of dollars in the spot market, by going to buy-buy swaps in advanced markets.
It has swelled the book ahead to more than $ 70 billion, causing dollars / advanced rupees premiums for a surge and foreign banks to order arbitration benefits from trading earlier this year.
Indian entities are net buyers of nearly $ 3 billion from the treasury during April and May, according to US government data, the first inflow of the South Asian nation since October.
The biggest beneficiaries of the Swap trade have become lenders abroad in India, which have easy access to large dollar investments, said people.
Email to RBI is not answered.
Banks are in the process of slaughtering trade, said people.
They sell treasury and swap buy-buy – sell the greenback and agree to buy in the future specified in the contract.
The impact of the release was seen in the rupee rates in the future.
12 months yields implied 7 basis points on Friday and Monday after order and currently traded at 4.34%.