The National Housing Bank (NHB) and Housing Development Corporation (Hudco) have approached Bank of Baroda to enter into cross-currency dollar-rupee swaps for around $100 million each. The tenure of the swaps will be between 20 and 25 years, which makes it one of the longest tenures in the currency swap market.
The institutions have received long-term dollar loans for these amounts with maturities ranging between 20 and 25 years from the Asian Development Bank (ADB). The swap is being done to meet their domestic lending requirements.
However, the exact amount which BoB will agree to swap has not been decided.
The pricing will worked out shortly, said S Gopalakrishnan, general manager international, Bank of Baroda.
"We were awaiting the union budget proposals to decide on the pricing and amount, as it gives an indication as to whether or not we can expect an increase in credit offtake.
A growing demand for funds from corporates on account of various incentives in the budget means we will have to conserve our rupee resources.
Naturally then we will scale down the amount of rupees we will be willing to swap for dollars,'' he added.
According to the terms of the swap, NHB and Hudco will give BoB rupee interest on the rupees received, while the interest paid byBank of Baroda will be in dollars at the interest rate that NHB pays to ADB.
The exchange rate risk, which is large considering the tenure of the swap, will be hedged by the bank, Gopalakrishnan said.
At the end of the swap period, BoB will be paid in rupees the amount that Hudco and NHB had taken and Bank of Baroda will pay the two institutions the dollars picked up when the swap was entered into.
Since Bank of Baroda will have to source the dollars from the market it will bear the exchange risk.
The benefit for BoB will the difference in interest rates between the rupee and dollar interest rates.
Bank of Baroda had recently concluded cross currency swap deals for 20th Century Finance Corporation and Ireda. The deal with Ireda had been for a similar maturity and amount.
The interest rate paid by Bank of Baroda to Ireda was linked to the London Inter Bank Offered Rate (Libor), while the interest paid by Ireda to the bank was linked to the ruling prime lending rate.
At present, authorised dealers who are permitted to enter into such cross-currency deals follow the norms laid done by International Swap Dealers Association.
