Unwind Lehman swaps: RBI directs banks

It has been indicated that the Reserve Bank of India (RBI) has directed banks to unwind their interest rate swap (IRS) transactions with Lehman Brothers. The RBI had talks with bankrecently to ascertain Lehman's exposure in the local IRS market, they said. "Yes. It's true. They have told us to do so," said one banker, when asked about the central bank's directive. Lehman, once the fourth-largest US investment bank, filed for bankruptcy protection this week, having collapsed under the weight of its exposure to the subprime mortgage-related securities. A spokeswoman for the Reserve Bank of India said: "Primarily, it is a bilateral issue. As a market regulator, we are interested in the market functioning in a smooth and orderly manner. And, therefore, we are facilitating it." Banks would unwind the IRS transaction by cancelling the position with Lehman and covering the transaction with a fresh counterparty, another banker said. The central bank has also directed Lehman's Indian primary dealership not to undertake transactions in Government securities as a primary dealer in the primary market. Moreover, Lehman Brothers Capital, a non-banking financial company, would need prior approval from the central bank before contracting any direct or indirect liability from any institution in India or abroad or making any foreign currency remittance.

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