Foreign banks, financial institutions and primary dealers scrambled to strike deals within minutes of the opening of the market as interest rate swaps (IRSs) and forward rate agreements (FRAs) made their debut in India. The Reserve Bank issued final guidelines for swaps on Wednesday. The first two IRS deals were struck by Standard Chartered Bank with Deutsche Bank and ICICI Ltd for a tenor of six months each and the first FRA deal was struck between HSBC and engineering giant Larsen & Toubro.

The floating rate benchmark used for the IRS deals was Reuters' Mumbai inter-bank offered rate (Mibor). Mibor is the weighted average of call money rates provided by 25 banks and institutions every evening and developed by Reuters India. The FRA deal, for a notional principal amount of Rs 20 crore, was a 2 x 5 FRA and thebenchmark was the 91-day commercial paper rate of L&T (9.93 per cent) to be floated on August 23. The other FRA - struck between Vysya Bank and Credit Lyonnais - has not yet been cleared by the RBI as it used the US Libor as benchmark. The FRA was for a two-month period from end-July.

The treasury marketing head of HSBC India, Amit Gupta, said a slew of FRA deals is in the pipeline.

An interest rate swap is a financial contract between two parties exchanging or swapping a stream of interest payments for a notional principal amount on multiple occasions during a specified period.

A forward rate agreement is a financial contract between two parties to exchange interest payments for a notional priniciple amount on settlement date for a specified period from the date of striking the deal to its maturity. The notional principal is the amount on which the interest is calculated. It is called notional as the principal is never exchanged between the two parties.

StanChart treasurer Sharat Anand said the bankhad struck the largest IRS deal for a notional amount of Rs 100 crore with a Delhi-based American multinational.

ABN Amro Bank and HDFC Bank struck IRS deals with Reliance Industries. ABN Amro struck a deal for a notional amount of Rs 50 crore with Reliance for a one-year tenure and the benchmark was the NSE-Mibor.

HDFC Bank also struck an interest rate swap deal with KEC International for six months. "HDFC Bank will receive a floating rate linked to the National Stock Exchange Mibor," HDFC Bank vice-president Ravi Pai said. Stanchart also concluded an IRS deal with KEC International.

Deutsche Bank concluded deals worth Rs 155 crore (of which corporate deals were worth Rs 135 crore) and the tenors of the transactions ranged between six months and one year. The bank's first IRS deal was a one-year swap for a notional principal of Rs 25 crore with ICICI.

Deutsche Bank's co-head of global markets, Rajiv Baruah, said the primary advantage of this product (called the MIONA Overnight Index Swap) is that itallows liquidity management and interest rate hedging decisions to be taken separately.

White goods manufacturer Electrolux Kelvinator entered into an interest rate swap deal for a one-month tenor with StanChart. "Electrolux will receive a fixed rate against the floating rate linked to the Reuters MIBOR," the official said.

A StanChart spokesperson said his bank conducted transactions worth Rs 161 crore with banks, financial institutions, corporates, primary dealer I-Sec and non-banking finance companies.

Vysya Bank also entered into a 90-day interest rate swap with American Express Bank. The deal was on a notional principal of Rs 10 crore with Vysya Bank receiving a fixed 9.5 per cent and paying the Mibor.

New generation private sector TimesBank said it had concluded a 90-day interest rate swap deal with Indian Capital Corporation.