Banks urge RBI to ease cash crunch with FX swaps

Some big lenders in India have asked the central bank to inject liquidity using foreign-exchange swaps as short-term currency financing costs surged to a four-year high, according to people familiar with the matter.

- Bhaskar Dutta

In recent informal interactions, some lenders asked the Reserve Bank of India to consider using FX swaps, where the parties simultaneously agree to exchange currencies in the spot market and reverse the transaction at a future date, the people said. Such operations could effectively inject rupee liquidity into the financial markets.

The requests came after an indicator for front-end currency borrowing costs surged on Monday, the people added, asking not to be identified as the engagements were private. A combination of seasonal factors and a surge in global investors' demand for the rupee as they chase local initial public offerings had contributed to the funding squeeze.