RBI Says Small Finance Banks Can Hedge Using Interest Rate Futures
This will expand avenues available to SFBs for hedging interest rate risk in their balance sheet and commercial operations more effectively.
The Reserve Bank of India allows small finance banks to enter into interest rate futures contracts only for hedging purposes, said Governor Shaktikanta Das on Friday in the monetary policy statement.
Interest rate futures, or overnight index swap refers to a hedging contract in which a party exchanges a pre-determined cash flow with a counterparty on a specified date.
OIS facilitates an efficient and flexible tool to participants to manage their short-term interest rate risk. By entering into these contracts, investors can hedge against interest rate fluctuations, benefit from cost-effective risk management, and capitalise on short-term interest rate expectations.
This will expand avenues available to SFBs for hedging interest rate risk in their balance sheet and commercial operations more effectively, with a view to provide them with greater flexibility, Das said.
Separately, the central bank will soon launch a mobile application for retail investors to trade government securities "on the go, at their convenience" under the RBI's Retail Direct Scheme, the governor said.
Launched in November 2021, the scheme allows individual investors to maintain government bond accounts with the RBI and invest in the securities. With this, retail investors can participate in primary auctions as well as trade through the NDS-OM platform.
Further, eligible foreign investors can now invest in the government's sovereign green bonds in International Financial Services Centre to enable wider participation from non-residents, the RBI said.
Currently, foreign portfolio investors who are registered with Securities and Exchange Board of India can invest in sovereign green bonds through different routes available for FPIs.