India has expanded the usage of a derivative product popular with foreign investors, according to people familiar with the matter, giving them wider access to the nation's $639 billion credit market.
The financial regulator for the special economic zone known as GIFT City has allowed global banks including HSBC Holdings Plc and Standard Chartered Plc to offer total return swaps for corporate bonds, the people said, asking not to be identified discussing a private matter.
The expansion of these swaps to corporate debt — in addition to government bonds — comes as India's credit market is booming. Indian companies have issued a record amount of local currency notes, while the high-yield private credit market is also growing. Construction conglomerate Shapoorji Pallonji Group raised $3.4 billion this year in the country's biggest private credit deal.
Total return swaps allow foreigners to get exposure to India without the need to open a domestic account. Under a swap, investors receive returns from an underlying asset without directly owning it, in exchange for fees to the other party. These instruments have become popular since the announcement of India's inclusion in global bond indexes, helping drive $22 billion of inflows into the nation's sovereign debt.
“There are lot of investors globally who would prefer to come through the TRS route and we have seen good volume growth through our GIFT City branch,” said Sachin Shah, a managing director at Standard Chartered India.
While the approvals for the swaps are only for onshore rupee debt, there is also demand from banks to offer these derivatives for dollar bonds from companies in GIFT City, according to the International Financial Services Centres Authority.
“We will soon be floating a consultation paper in this regard,” K Rajaraman, chairman of the regulator said in an earlier interview.
An HSBC spokesperson confirmed it has approval to begin offering swaps for corporate bonds out of GIFT City. A representative for the financial regulator didn't respond to a request for comment.
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