RBI Issues Details On $5-Billion Forex Swaps
Market participants will be required to place their bids in terms of the premium that they are willing to pay to the RBI for the tenor of the swap.
The Reserve Bank of India issued on Tuesday details on the dollar-rupee buy/sell swap auctions that it is set to conduct on Jan. 31 of $5 billion for a period of six months.
The decision comes as the RBI aims to boost liquidity in the banking system. As of Jan. 27, liquidity in the banking system was in a deficit of over Rs 3 lakh crore.
The auction will be held from 10:30 a.m. to 11:30 a.m., with the near-leg date on Feb. 4 and far-leg date on Aug. 4, the central bank said in a press release.
Market participants will be required to place their bids in terms of the premium that they are willing to pay to the RBI for the tenor of the swap, expressed in paisa terms up to two decimal places. The auction cut-off will be based on the premium and it will be a multiple-price based auction.
The RBI has laid down operational guidelines, eligibility criteria and other details as following:
Authorised dealers of category-I banks will be the eligible entities to participate in the auction.
The swap is in the nature of a simple buy/sell foreign exchange swap from the RBI side. A bank shall sell US dollars to the RBI and simultaneously agree to buy the same amount of US Dollars at the end of the swap period.
The auction cut-off will be based on the premium amount in paisa terms up to two decimal points. The market participants will be required to place their bids with the premium that they are willing to pay to the central bank for the tenor of the swap expressed in paisa terms up to two decimal places. Successful bids will get accepted at their respective quoted premium.
Once the auction window is closed, all the bids would be arranged in descending order of the swap premium quoted and the cut-off premium will be arrived at the premium corresponding to the notified US dollar amount of the auction. Successful bidders will be those who have placed their bids at or above the cut-off premium. All bids lower than the cut-off premium would be rejected.
There will be provision of pro-rata allotment should there be more than one successful bid at the cut-off premium.
Under the swap auction, minimum bid size will be $10 million and in multiples of $1 million thereafter. The eligible participants are allowed to submit multiple bids. However, the aggregate amount of bids submitted by a single eligible entity should not exceed the notified amount of auction.
In the first leg of the transaction, the bank will sell US dollars to the RBI at FBIL Reference Rate of the auction date. The settlement of the first leg of the swap will take place on spot basis from the date of transaction and the RBI will credit the rupee funds to the current account of the successful bidder and the bidder needs to deliver US dollars into the RBI's nostro account. In the reverse leg of the swap transaction, the rupee funds will have to be returned to the RBI along with the swap premium to get the US dollars back.
Banks desirous of participating in the proposed auction should furnish their settlement details to the RBI back office latest by preceding day of the auction.
Banks will be exempted from the International Swaps and Derivatives Association requirements for the purpose of these swaps.
Swaps under the auction, once undertaken with the RBI, cannot be cancelled and no request for any modification or revision to the same would be entertained.
The results of the auction will be announced on the same day.
Eligible participants should submit their bids through email only.
