Why is NaBFID using more derivatives?

NaBFID is increasing derivative use to manage its finances as falling interest rates squeeze profit margins.

What types of derivatives is NaBFID engaging in?

NaBFID is undertaking transactions such as index swaps and total return swaps with major global banks.

How are Indian state bonds involved with NaBFID's derivatives?

For the first time, NaBFID's derivative deals are being linked to Indian state government bonds due to rising yields.

Home / Business and Economy / India Lender Bets Big on Derivatives Amid Rate Slump

India Lender Bets Big on Derivatives Amid Rate Slump

9 Jan

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Summary

NaBFID is increasing derivative use to counter falling interest rates.
Transactions involve index swaps and total return swaps with major banks.
New deals link to Indian state bonds due to rising provincial yields.

India Lender Bets Big on Derivatives Amid Rate Slump

India's primary infrastructure financier, NaBFID, is significantly increasing its utilization of derivatives to navigate a challenging interest rate environment. Falling rates have been compressing the lender's margins, prompting a shift towards more sophisticated financial instruments. NaBFID has recently conducted various swap transactions, including index and total return swaps, with prominent international banks such as JPMorgan Chase and Standard Chartered.

Over the past year, NaBFID has ramped up these derivative deals as a protective measure against declining interest rates. The Reserve Bank of India's rate cuts have created a mismatch between its fixed borrowing costs and loans that are repriced more frequently. Swaps offer a solution by allowing the exchange of fixed for floating payments, thereby stabilizing cash flows.