State-owned LIC, India's biggest life insurer, is set to enter the market for interest-rate derivatives, specifically, forward rate agreements (FRAs), reported Reuters.
FRAs between banks and insurers allow the latter to lock in rates for a future date, protecting them from volatility. Insurers entering such deals can offer guaranteed returns to policyholders.
Central banks globally and in India are poised to cut rates over the coming months. Rising demand for debt via derivatives such as FRAs from insurance companies could lead to yields falling and help lower borrowing costs for the government.
Mr Siddhartha Mohanty, LIC’s CEO, said in a recent media briefing, that the insurer had been in talks with banks to start FRA trades.