Interest Rate Markets

Interest Rate Markets (IRM), as the name signifies, handles the portfolio of interest rate instruments for the Bank. This primarily includes managing investments for regulatory requirements like CRR and SLR, and deploying Bank's funds in various interest rate instruments for generating profits. The instruments we invest in vary from money market instruments like Commercial Papers (CPs), Certificates of Deposits (CDs) and T-Bills to dated Government Securities (G-Secs) and State Development Loans (SDLs). In addition, we also invest in Corporate Bonds issued by financially sound Indian companies. Activity at IRM desk is broadly divided into two desks – SLR and non-SLR

The SLR desk can be further divided based on its various functions like CRR product management, investment in dated G-Secs, investment in money market instruments, etc.

The CRR desk manages daily CRR product to maintain the Cash Reserve Ratio at the RBI prescribed percentage of Net Demand and Time Liabilities (NDTL) of the Bank. The CRR dealer has to keep a tab on all the withdrawals and deposits happening across the Bank and maintain the CRR through various borrowing and lending windows provided by the RBI like overnight Liquidity Adjustement Facilifty (LAF)/Marginal Standing Facility (MSF), Export Refinance and Term Repo as well as others available in the market like CBLO, Call and Market Repo. In addition to maintaining the CRR product based on various parameters given by RBI from time-to-time, the CRR desk has to optimize the funding costs while also deploying liquid short term funds optimally among the various avenues available.

For funds available for a slightly longer duration, the SLR desk takes the call to invest in money market instruments like T-Bills or CDs. These funds may also be passed on to the non-SLR desk for investment in shorter duration instruments viz. CPs, shorter duration corporate bonds. The SLR desk may even raise funds through issuance of CDs to add to Bank's cash position, if required.

The SLR desk also maintains the Statuary Liquidity Ratio (SLR) of the Bank, as prescribed by RBI. Banks have to compulsorily invest part of their NDTL in SLR securities like dated G-Secs and Treasury Bills issued by the Government of India and SDLs issued by State Governments. SLR securities are sovereign in nature and thus offer a safe haven investment. In addition, SLR securities can be tendered in repo/CBLO market to generate liquidity for the Bank. The desk also manages Bank's investment portfolio in these instruments over and above the SLR requirements.

The non-SLR desk looks at all investments in securities issued by Indian companies like Corporate Bonds and CPs. It also handles trading in Interest Rate Futures Market (IRF) and in Overnight Indexed Swaps (OIS).

Managing the Interest Rate portfolio of a large Bank like ours involves a large number of calls to be taken by the IRM desk. Traders on the desk have to choose between various instruments for deployment of or for raising funds. Along with the interest rate instruments mentioned above, we also collaborate with the FX Swaps desk to make use of opportunities for deploying or generating funds in the FX Swap market if it provides better returns for the Bank. Such decisions are taken by the desk on a regular basis for various tenors from overnight to 3 months to 10 years with an aim of maintaining a smooth flow of cash for the Bank's lending and deposits business and to generate superior returns from whatever funds are available to us, all while meeting the regulatory requirements.