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Swaps, derivatives pact -- Citibank knocks off ring-fencing clause

Abhijit S. Basu

MUMBAI, June 23

CITIBANK has decided to delete the controversial `ring- fencing' clause from its ISDA (International Swaps and Derivatives Association) agreement with other local banks.

Ring-fencing basically refers to a situation where the parent (Citibank N.A.) refuses to own up the acts of its Indian branches.

Speaking to Business Line , Mr. Nanoo G. Pamnani, CEO, Citibank N.A., India, said ``we have decided to delete this (ring-fencing) clause as it has unnecessarily created a lot of controversy. There was never any move by the US parent to stop bac king its local branches.''

The Indian private sector banks had raised objection to Citibank's incorporating this clause in the ISDA agreement. Section 10 (c) of the ISDA, which relates to this issue, specifies: ``If a party is specified as a multi-branch o ffice in the schedule, such multi-branch party may make and receive payments or deliveries under any transaction through any office listed in the schedule, and the office through which it makes and receives payments or deliveries with respect to a transaction will be specified in the relevant confirmation, provided, however, that only the Indian offices of a multi-branch party shall be responsible to the other party irrespective of the office through which the payments and deliveries under any transaction are made.''

Market sources said Citibank had done the right thing by deleting the ring-fencing clause as ``after all, it had got the permission to operate in India based on the strength of its US parent.'' Sources said none of the other foreign banks operating in India had this line in their ISDAs which states that ``only the Indian offices of a multi-branch party shall be responsible to the other party irrespective of the office through which the payments and deliveries under any transactions are made.''