Financial Daily from THE HINDU group of publications
Saturday, Jan 03, 2004
Financial Daily from THE HINDU group of publications Saturday, Jan 03, 2004 |
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Money & Banking
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Derivatives Markets Trading in interest rate futures — RBI group moots 10 pc CAR Our Bureau
Mumbai , Jan. 2 AN RBI group has proposed a capital adequacy ratio of 10 per cent and a minimum net worth of Rs 200 crore for a bank to start trading in interest rate futures. According to a release from the Reserve Bank of India (RBI), the group's report, which was released today, said: "Banks having adequate internal risk management, control systems and robust operational framework could be allowed to run trading positions across various interest rate derivatives including interest rate futures.'' The report awaits feedback from debt market players latest by January 10. Earlier, banks were not permitted to trade in this instrument but were allowed to only hedge their exposures, such as the interest rate risk they run on the Government securities portfolio. The central bank allowed banks and primary dealers to transact in exchange traded interest rate futures in June 2003 with primary dealers allowed to trade while banks were not. However, this instrument has seen little interest in the market with most players finding the design of the product faulty. In 1999, interest rate derivatives such as rate swaps and forward rate agreements were introduced in India, which is a more active market than the futures market. The fixed income association, FIMMDA, has made representations on developing the market to the SEBI, the RBI and the exchanges. The latest report has also proposed that banks should set up limits for trading in such products and get them approved by their respective boards. According to the apex bank, volumes have risen for the interest rate derivatives market in the current fiscal, with data showing that number of contracts rose to 14,748 on October 17 from 9,633 on April 4. The outstanding notional principal amounts also jumped to Rs 3,83,866 crore from Rs 2,42,983 crore in the same period.
More Stories on : Derivatives Markets | Interest Rates | RBI & Other Central Banks
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