Sethi, who is also chairman of the fixed income money market and derivatives association of India (FIMMDA), has been a strong votary of reforms in the inter-bank market, and used `Invest India-Risk Management Series' to underscore his point.

"IRS' help in separating interest rate and liquidity risks... liquidity has been the overiding concern of banks, but the Reserve Bank's measures over the last few years have been to transfer some of the responsibility on liquidity management to corporates... and that has come through by way of progressively reducing the cash-credit component", says Sethi.

A typical IRS transaction would see two parties contracting to pay or receive with one leg on a fixed coupon basis and the other a floating one - usually the the National Stock Exchanges' overnight Mibid and Mibor quotes.Market sources estimate the aggregate amount of IRS transactions on a weekly basis at anywhere between Rs 100 crore to 400 crore, but concur that much can be done. A major factor hampering such deals is the lack of variance among market players: either everybody feels that interest rates are going down; or that they are going up. "This is typical of an illiquid market. I think the point is that there are very few players. And then quite a many banks have also to sort their settlement and internal issues", observes Sethi. The Reserve Bank has in its recent credit policy allowed banks to evolve a benchmark using any domestic money or debt market rate as long as the exposure to corporates are within the single or group limit norms.

FIMMDA has recently set up a working group for the daily valuation of IRS, and for valuing currency swaps on a daily basis. The working group will among other things decide on the manner in which rates are to be gathered - polling, quotes in screen; the criteria to be used and how it is to be reviewed to keep it current; manner in which the information is to be filtered; on whether the credit rating is to be taken into account as also a periodical review of the methodology. A final report is seen coming through soon.