The Reserve Bank of India (RBI) on March 29 announced that it has decided to undertake a sell/buy swap auction of $5 billion between 10.30 am and 11.30 am on April 26, 2022, to elongate the maturity profile of the forward book and smoothen the receivables relating to forward assets.
The said auction will be multiple price-based, meaning, successful bids will be accepted at their respective quoted premiums.
The RBI stated in a release that authorised dealers (ADs) category 1 banks will be eligible to participate in the auction and that the USD/INR swap will be in the nature of a simple sell/buy foreign exchange swap from the Reserve Bank’s side. Meaning, a bank will buy US dollars from the Reserve Bank and simultaneously agree to sell the same amount of US dollars at the end of the swap period.
The cut-off of the auction will be based on the premium amount in paisa terms up to two decimal points and the market participants will have to place their bids with the premium that they are willing to receive from the RBI for the tenor of the swap (expressed in paisa terms up to two decimal places).
Once the auction window closes, all the bids will be arranged in ascending order of the swap premium quoted and the cut-off will be arrived at the premium corresponding to the notified US dollar amount of the auction. Successful bidders will be those who have placed their bids below or at the cut-off premium. All bids higher than the cut-off premium will be rejected. The RBI has made provisions for pro-rata allotment in case there is more than one successful bid at the cut-off premium.
The minimum bid size has been fixed at $10 million and in multiples of $1 million thereafter. Eligible participants can also submit multiple bids. However, the aggregate amount of bids submitted by a single eligible entity should not exceed the notified amount of auction.
The result of the auction will be announced on the same day.
