India expands access to $639 billion credit market via total return swaps: Report
New Delhi: India has expanded the scope of a popular derivative instrument among foreign investors, thereby enhancing their access to the country’s $639 billion credit market, Bloomberg reported, citing people familiar with the matter.
According to the publication, the regulator overseeing the special economic zone at GIFT City has allowed global banks, including HSBC Holdings Plc and Standard Chartered Plc, to offer total return swaps linked to corporate bonds.
Previously limited to government securities, this extension to corporate debt comes amid strong momentum in India’s credit market.
Bloomberg noted that Indian companies have issued a record volume of bonds in local currency, and the private high-yield credit segment is also gaining traction.
A key highlight this year was the $3.4 billion raised by construction major Shapoorji Pallonji Group, marking the largest private credit deal in India so far.
Total return swaps (TRS) allow foreign investors to benefit from Indian assets without having to open a local account.
These instruments let investors earn returns from an underlying asset they do not own, while paying a fee to the counterparty.
As per the Bloomberg report, TRS has gained popularity following India’s inclusion in global bond indices, helping attract $22 billion into Indian sovereign debt.
“There are lot of investors globally who would prefer to come through the TRS route and we have seen good volume growth through our GIFT City branch,” said Sachin Shah, Managing Director at Standard Chartered India, as quoted by Bloomberg.
Currently, TRS are permitted only for rupee-denominated domestic debt.
However, international banks have also expressed interest in extending this mechanism to dollar-denominated corporate bonds issued from GIFT City, according to the International Financial Services Centres Authority.
“We will soon be floating a consultation paper in this regard,” the regulator’s chairman, K Rajaraman, told the publication in an earlier interview.
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