How would the swap be re-priced once a bank approaches RBI for cancellation of the swap subsequent to premature withdrawal of the underlying FCNR (B) deposits? - FEMA - FAQ - FEMA

Ans. The re-pricing of the swap would be done as given in the illustration : Illustration (Please refer to the answer to the Question No. 8 above) A. At the time of entering into a sell/buy swap with RBI A bank enters into a swap deal with RBI for a swap tenor for 1235 days on 19 September 2013. Near/Spot leg 23 Sep 2013 Far Leg (Spot leg plus tenor of 1235 days) 09 Feb 2017 Near leg (Buy for RBI) Far Leg (Sell for RBI) Value Dates 23 Sep 2013 09 Feb 2017 Swap Amount (Principal) USD 1 million USD 1 million USD-INR Rates 62.6390 70.4419* * Computed by compounding the near leg rate of 62.6390 at 3.5 per cent semi-annually for the tenor of the swap, i.e. 1235 days. Transaction with RBI: On September 19, 2013, the bank will enter into a sell/buy swap with RBI for USD one million at 62.6390/70.4419. The sell leg is undertaken at that day s RBI reference rate. B. At the time of cancellation/ termination of the swap consequent upon premature withdrawal of the underlying FCNR (B) deposits If the swap is terminated after 756 days, the residual tenor of the swap would stand at 479 days. The swap cost would be re-fixed as under: Revised swap cost to be applied for the completed tenor of the swap (756 days) would be equal to 14.9 % (3.5%+4.0%+7.4%). It is assumed that the prevailing USDINR swap rate for residual tenor of 469 days at the time of cancellation is 7.4%. The revised swap cost would be adjusted in the first leg of the new swap transaction (buy/sell) to be undertaken by the bank with RBI. New Swap to be undertaken at the time of cancellation of existing swap Near leg (Sell for RBI) Far Leg (Buy for RBI) Value Dates 19 Oct 2015 09 Feb 2017 Rates 84.3561 70.4419 Transaction with RBI: On October 15, 2015, the bank will enter into a buy/sell swap with RBI for USD one million at 84.3561/70.4419.