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Photo: Mint
Photo: Mint

Banks enter offshore rupee NDF market

RBI felt the need to limit the impact of the NDF market on the onshore market, and curb volatility in the movement of the rupee

Banks operating from the international financial services centre (IFSC) in Gift City, Ahmedabad, traded in offshore rupee derivatives, or non-deliverable forwards (NDF) market for the first time on Monday.

Reserve Bank of India had relaxed its regulations and allowed offshore units of Indian banks to participate in the NDF market, after it was found that rupee trading volume in the offshore market was higher than what was happening in the onshore market.

The central bank had, therefore, felt the need to limit the impact of the NDF market on the onshore market, and curb volatility in the movement of the rupee.

Bankers said though the volume of trading was muted, inter-bank deals worth $150million-$200 million took place on the first day.

Foreign and private sector banks, such as HDFC Bank, ICICI Bank and Standard Chartered Bank, took part on the first day, said a senior treasury official of a private sector bank, requesting anonymity.

“No client activity happened expect for inter-bank deals. It will take some more time for client activity to pick up as banks have to complete the process of on-boarding, Know Your Customer (KYC) rules, etc. However, once that picks up, volumes in the inter-bank and customer side of business will grow," said the official cited above.

Going forward, bankers expect clients, such as hedge funds and multinational corporations, which are having exposure to India, to become potential clients for Indian banks. This will gradually reduce the arbitrage between offshore and onshore markets and lead to better price discovery and market depth.

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