India has broadened the use of a derivative instrument which is popular with foreign investors, a Bloomberg report stated citing sources familiar with the development, thereby increasing their access to the country’s $639 billion credit market.
The financial regulator overseeing the special economic zone known as GIFT City has reportedly permitted international banks such as HSBC Holdings Plc and Standard Chartered Plc to offer total return swaps linked to corporate bonds, the sources told the publication.
The extension of these swaps to include corporate debt — beyond just government securities — aligns with the current surge in India’s credit market. According to the report, Indian firms have issued a record volume of local currency bonds, while the high-yield private credit market is also growing. Notably, construction giant Shapoorji Pallonji Group secured $3.4 billion this year in the largest private credit transaction in the country to date.
Total return swaps enable foreign investors to gain exposure to Indian assets without the need to open a local account. Through these agreements investors earn returns from an underlying asset without actually owning it, while paying a fee to the counter party. These instruments, the Bloomberg report maintained, have become popular since the announcement of India’s inclusion in global bond indexes, contributing to $22 billion in inflows into the country’s sovereign debt.
“There are lot of investors globally who would prefer to come through the TRS route and we have seen good volume growth through our GIFT City branch,” said Sachin Shah, Managing Director at Standard Chartered India, as quoted by Bloomberg.
Although the current approvals for total return swaps apply only to onshore rupee-denominated debt, banks are also showing interest in offering these derivatives for dollar-denominated bonds from companies in GIFT City, according to the International Financial Services Centres Authority.
“We will soon be floating a consultation paper in this regard,” K Rajaraman, chairman of the regulator, told the publication in an earlier interview.