Sort out deals with Lehman, RBI tells banks

The Reserve Bank of India (RBI) had an urgent meeting with treasury heads of large banks late on Tuesday in an attempt to sort out their swap deals with Lehman. The possibility of all banks coming together to unwind their positions at one go was discussed at the meeting. A quick solution to swap exposures is aimed at ending the lingering uncertainty of keeping live derivatives positions of the failed bank on the books of local banks. Lehman had struck derivatives deals like interest rate swaps (IRS) with banks through its primary dealership subsidiary. Lehman’s rate-swap positions in India is estimated to be Rs 500 crore-Rs 600 crore. In the course of the meeting, some of the bankers suggested that all deals with Lehman could be terminated on the same day. However, not all present agreed to the proposal. Worried about the risk Indian banks may face with the collapse of Lehman Brothers, the central bank asked banks to spell out their derivatives exposures to Lehman Brothers in the local and overseas markets. “However, what has come as a relief is that Lehman is a net receiver of interest rate swap in the domestic market,” said a treasury head. This means, if derivatives exposure of Lehman is calculated on a mark-to-market basis for closing the deals immediately, counter-parties have to pay Lehman. Bankers said Lehman would receive around Rs 20 crore on a net basis.