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USDINR swap for three years at Rs. 7.76 = about 3.62% a year for three years.
This is good - the swap is on 28th March, which means banks get two days to borrow from abroad. My calculations are that they can offer 3.5% to 4% interest in USD terms abroad.
At a 3.5% USD deposit with an Indian bank in USD terms, if you can borrow at 2.5% and lever up 10x, you can make a yield of 12%+ a year (a structure banks are offering abroad but only at 6% yields - eating up more of that spread)
The Indian bank gets money at an effective rate of 7% or so for three years - cheaper than an Indian fixed deposit. No exchange rate risk (due to the RBI swap).
For the RBI, it gets to inject 35,000 cr. into the system without either buying dollars in the market (will distort prices) or buying government bonds (which it's done enough of).
This liquidity however will reverse in 2022 when the swap matures, but the thought might be to just do another swap by that time. Hopefully the next government will float the rupee properly by then.
The swap a complex instrument and thankfully so, because now the loonies on the political side (read: nearly all of twitter) can misinterpret it to the moon and back. You gotta have something for them to do, because popcorn sales are part of GDP.
