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Interest Rate Derivatives market in India- A Special Report

Fitch Ratings, in its special report released on 8th September 2004, said that the recent phenomenal growth in derivatives markets in India has seen daily trading in interest-rate derivatives match that of government securities, though the market is still embryonic, both in terms of depth and sophistication. It is therefore important for policy makers to ensure that legal, accounting, valuation and risk-reporting policies are continuously monitored and improved to ensure market stability.

This report draws on a survey undertaken in conjunction with the Indian Banks Association (IBA) on India’s interest rate and foreign exchange derivative markets.

Some of the key points arising from the survey are listed below:

Predominantly an inter-bank market, with maximum trading in overnight index swaps (“OIS”), followed by currency swaps, and currency options. Interest rate futures have yet to gain volumes.

International Swaps and Derivatives Association (“ISDA”) agreements have gained acceptance in the Indian marketplace.

Tenors do not go beyond five years, which is probably due to the absence of counterparty lines for longer tenors. Therefore, the market still lacks the tools to manage interest-rate exposure beyond five years.

Legal and documentation risks appear the main concerns for market participants. Illiquidity, accounting and tax treatment were also areas that were seen as impediments by survey respondents.

The small number and varying quality of responses highlighted the lack of market depth. This was further emphasised by the fact that most respondents cited the need for greater investor education as important for the development of the market.


Moody's Ratings of Indian Banks and Financial Institutions (February 2004)...Click Here

Detailed comments of Moody's upgrade of India's long term foreign currency rating (February 2004) ...Click Here

Detailed comments of Standard & Poor's Upgrade of India's Outlook (December 2003)...Click Here

Detailed comments of Standard & Poor's Ratings of major Indian financial institutions/commercial Banks (October 2003) ...Click Here

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