Small banks may keep off RBI’s FX swap auction

Mumbai, March 24: The Reserve Bank of India's forex swap sale this week may be fully subscribed thanks to foreign and private banks including big PSBs banks, while a shortage of dollar may keep small banks away, experts said.

The RBI earlier this month announced it would inject rupee liquidity by swapping dollars at a market-determined premium on Mar 26.

"Although, we may see very few PSBs with the exception of big PSUs like State Bank of India and Bank of Baroda to actively participate in the FX swap auction, private and foreign banks may ensure that the auction is fully subscribed," said a dealer with a public sector bank.

Foreign banks with higher number of branches abroad will find it easier to raise dollar funds, which might be an issue for smaller public sector banks.

Most PSBs may lack dollar funding required for participating in the auction amid pricing issue.

However despite the shortage of dollar, Pranesh Upadhyay, Managing Partner at BlacPearl Consultancy aid, "We may see FX swap auction to be fully subscribed mostly with banks selling the swap at a premium of 4-4.5 per cent from the current market level."

Also, dealers believe PSU bank may find it difficult to keep their exposure open for an extended time.

On the pricing front, the dealer with a public sector bank said that the RBI would not be comfortable if the premia is below Rs 5.50-6.00 for the three-year swap.

Forward premia for dollar maturing in three-year ended at Rs 7.82 on Friday compared to previous close of Rs 7.41.

The RBI, in a bid to mop up dollars and pump in rupees, said earlier this month that it will conduct its first dollar/rupee buy-sell swap auction on Mar 26.

— TickerNews Service