House of the year, India: ICICI Bank

Asia Risk Awards 2020

Prasanna Balachander, ICICI

Indian regulators have typically taken a cautious view to liberalising the country’s derivatives markets but, over the past 18 months, they have started to broaden the range of foreign exchange and interest rate derivatives instruments that can be traded onshore. ICICI Bank was well-placed to support this trend due to the combination of its extensive domestic franchise and international bank experience of its global markets team.

In March 2019, the Reserve Bank of India (RBI) introduced a major deregulation of the domestic interest rate derivatives market by allowing foreign players to trade overnight indexed swap (OIS) contracts for non-hedging purposes. The impact of this change was instant, with client volumes in onshore OIS contracts rocketing and a meaningful drop in non-deliverable OIS figures. According to one senior official from ICICI Bank’s treasury team, bringing rupee OIS trading onshore not only benefited domestic market players it also means the RBI has a more granular view on interest rate market activity.

“Liberalisation in the interest rate derivatives market was a milestone in the development of the rates markets in India,” says Prasanna Balachander, group head of global markets – sales, trading and research. “The RBI opened up the OIS markets to non-residents in March 2019 and, over the last 15 to 16 months, we have seen tremendous activity in that market. This has helped in the onshoring of the offshore market as a number of entities, including hedge funds, are now able to hedge as well as take active views on Indian interest rates.

ICICI’s first offshore OIS client was one of the world’s largest integrated agricultural commodity firms and it wanted to transact based on the relaxed RBI guidelines. The deal involved an offshore participant with a branch of an Indian bank on a back-to-back basis. The Indian lender was able to execute the trade within just two days of the rule change going live. This was the first such deal that any bank was able to bring to market.

Executing trades on behalf of an offshore firm is significant given that the Indian derivatives market has typically been split between domestic banks serving Indian clients and global banks providing international access for Indian corporates, while also handling offshore rupee activity.

A major motivation for the RBI in bringing OIS trading onshore was to deepen domestic financial markets – an ambition which, according to Balachander, also provides ICICI Bank with a new, international client base. Balachander says the size of the bank’s domestic trading book meant it was an attractive counterparty for offshore firms looking to access Indian markets.

Our strength is different. We run one of the largest treasuries in India with a significant trading interest in all financial market products

Prasanna Balachander, ICICI Bank

He points to the breadth of ICICI’s Indian franchise: its global markets team has a sales force of 225 spread across 12 Indian cities, and deals with more than 50,000 clients, which means the firm has a domestic reach that global banks active in India can’t match.

“Our strength is different. We run one of the largest treasuries in India with a significant trading interest in all financial market products. We reached out to investors by leveraging our trading group and started trading OIS with them,” says Balachander. This has led, in just over a year, to ICICI snaring 10% of the domestic OIS market.

“This is because we have significant risk limits, a diverse set of clients with similar diverse requirements and the ability to manage the net market risks in-house. As a result, a number of the largest global firms deal with us,” he says.

FX overhaul

FX trading in India has also seen a major shake-up.

On February 7, 2019, the RBI convened a task force with the objective of developing onshore financial markets to act as a price-setter of the rupee globally. ICICI Bank played a key role in the committee discussions, which culminated in the central bank’s decision – in January 2020 – to allow banks to deal in USD/INR 24 hours a day (Monday to Friday).

But the biggest change came in the non-deliverable forwards market, when the RBI signalled in March 2020 that it would allow Indian banks to deal dollar-rupee NDFs, starting in June this year.

ICICI was the first bank in India to deal in a dollar-rupee NDF contract on June 1 at Singapore opening time and in subsequent weeks it traded what it says were “significant notionals” with offshore institutions.

“We have been in the market for close to two months now and we have seen a lot of volume,” says Balachander. “We are [far] ahead of the competition as far as Indian banks are concerned.”