RIL almost leads to exchange money for RBI swap auctions
The Use Of Currency Swaps Across The Country To Reduce A Cash Crunch Helps Companies To Reduce Their Hedging Costs On Foreign Loans. Companies Have Joined Banks To Bid At The Reserve Bank Of India Swap Auctions ( RBI ) This Year, According To Two Bankers Who Asked Not To Be Identified Stating Customer Confidentiality Reliance Industries ( RIL ) And A Unit Good For More Than 60% Of The $ 5 Billion Retrieved On April 23, According To A Person With Knowledge.
A Persistent Cash Shortage Due To A Crisis In The Shadow Banking Sector Has Spurred Firms To Look Offshore For Funds, Just As The Costs Of Borrowing In Dollars Decline From A 10 Year High As The US Federal Reserve Turned Dovish. That Makes It Cheaper For Domestic Firms To Borrow Overseas, And Then Swap It Into Rupees With The RBI, According To Analysts.
" RBI's Window Could Aid Traction For Overseas Borrowing, Which Has Been Missing Owing To Elevated Hedging Costs, Although Global Interest Rates Have Softened," Said Soumyajit Niyogi, Associate Director At India Ratings & Research. Indian Companies Borrowed $ 12.2 Billion From Overseas In March - The Most In Any Month In The Past Fiscal Year - With RIL And Its Telecom Unit Raising A Combined $ 2.2 Billion, RBI Data Show. Mukesh Ambani-controlled RIL Took Part In The Auction As It Was Cheaper Swapping Its Dollars With The RBI Than In The Market, Said The Person Who Asked Not To Be Identified In Discussing The Company's Finances.
" In The Current Scenario Of Improved Liquidity Conditions For EM Borrowers As A Result Of The US Fed's Price Change, The Issue Of Offshore Debt Is Cheaper Than Onshore Loans For Indian Companies," Said Bharat Shettigar, Head Of Asia's Ex-China Corporate Credit Survey At Standard Chartered Bank .
As a point of comparison, the spread between the minimum lending rate at India's largest bank and the one-year London interbank offered rate for dollars, including hedging costs, widened to 2.56% on May 1 from an average of 2.16% for 2018, according to India Ratings. Spokesmen for the central bank and RIL declined to comment .
The "impact cost" of hedging large amounts for a corporate in the secondary market may be higher than via the swap window, said Anindya Banerjee, currency strategist at Kotak Securities .
The RBI said in March it would supplement its openmarket debt purchases with currency swaps to inject rupees and ease a liquidity crunch. It has since held two auctions of $5 billion each, both of which drew bids three times in excess of the targeted value. It will probably hold at least one more swap auction after the election, Reuters reported on Tuesday, citing three officials with direct knowledge of the plan .