2nd dlr auction:Large demand from cos spiked premium,say banks

Higher demand from corporates to grab cheaper rupee loans has led to an increase RPT increase in the premium at the Reserve Bank's second dollar/rupee buy- sell swap auction, say bankers and dealers. In the auction conducted Tuesday, the RBI set the cut-off premium at Rs 8.38 to a dollar as against Rs 7.76 in the maiden auction held on March 26. At both the auctions, the central bank mopped up USD 5 billion each.

"It looks like only corporates have participated in the second auction. Banks can get cheaper rupee loans from the market so they seem to have stayed away," said a senior dealer with a state-run bank told PTI Wednesday. According to analysts, an AAA-rated corporate if goes for raising a rupee term loan from the market it would get the money at over 8 percent, while in the RBI's dollar/rupee swap auctions, it can raise the money at around 7.75 percent.

Bankers attributed the higher demand from corporates for the auction as part of their heading. For instance, a company that has raised the dollar money abroad in the past chose to participate in the auction can use the money for hedging their positions. "All the offers were largely driven by the croporates.

Some of the corporates would have bid at higher levels as in the auction as they wanted to get cheaper rupee loans from the RBI to hedge their dollar borrowings," explained a senior forex dealer. Total amount of bids received in the second auction was USD 18.65 billion as against an offer of USD 5 billion. In the first auction, the central bank had received USD 16.31 billion bids for a similar offer.

The number of bids received during the second auction was 255 and the RBI accepted only five bids. In the previous auction, the RBI got 240 bids and accepted 89. "This shows that a couple of corporates have only got the money in the second auction," said another treasurer.

Last month, the RBI had announced to infuse rupee liquidity into the system through dollar/rupee buy/sell swap auction under which it would buy dollars from banks and give rupee loans for a three-year tenor at a premium. Apart from infusing liquidity into the system, the dollars mobilised through the auctions would also augment the foreign exchange reserves, which stood at USD 414.886 billion in the week to April 12.

Market participants are required to bids in terms of the premium that they are willing to pay to the Reserve Bank for the three year tenor of the swap. The sale is done on a French auction, wherein the higher the bids, the higher the premium one pays. In other words, a French auction is a multiple-price auction based on a minimum price and the price moves up or down depending on the bid quantity and price quoted and the allotment is done on a weighted average of the total bids and premium offered.

At the dollar auctions, the RBI has set the Mifor (Mumbai interbank forward offer rate) as the minimum premium. PTI HV BEN BEN BEN.