Finance Minister Nirmala Sitharaman introduces Bill on bilateral netting, to help banks

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Updated: Sep 15, 2020 11:54 AM

Citing the RBI’s estimates, the Survey had said bilateral netting arrangements could have helped 31 major banks participating in India’s OTC derivatives market save about Rs 2,258 crore in regulatory capital during FY 2017-18.

The Bill was brought in to replace an ordinance that was promulgated in June to protect thousands of firms, ravaged by the Covid-19 pandemic, from being dragged into insolvency proceedings.The Bill was brought in to replace an ordinance that was promulgated in June to protect thousands of firms, ravaged by the Covid-19 pandemic, from being dragged into insolvency proceedings.

Finance Minister Nirmala Sitharaman on Monday introduced the Bilateral Netting of Qualified Financial Contracts Bill, which could help banks release a portion of their capital locked in such bilateral transactions.

According to the Economic Survey for 2019-20, a bilateral netting agreement allows two counter parties in a financial contract to offset claims against each other to determine a single net payment obligation due from one counter party to the other. So, essentially, it permits two parties involved in a swap agreement to net-off their swap positions. Without the bilateral netting provision, Indian banks typically have had to set aside higher capital against their trades in the over-the-counter market.

Citing the RBI’s estimates, the Survey had said bilateral netting arrangements could have helped 31 major banks participating in India’s OTC derivatives market save about Rs 2,258 crore in regulatory capital during FY 2017-18.

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