MUMBAI: State-owned Life Insurance Corporation of India (LIC) has forayed into the forward rate agreements (FRA) market, inking deals with more than 10 major banks – both Indian and foreign – in the first quarter of FY26.
The move underscores the growing use of derivatives by LIC to manage interest rate risks, a strategy long favoured by global insurers and large institutional investors. FRAs allow participants to lock in borrowing or lending rates for a future period, providing a hedge against rate volatility.
“We have deepened our exposure in the quarter to FRAs. We have crossed more than 10 banks, including Indian banks. For the time being, we will continue with FRAs,” LIC’s management said in its post-earnings call last week.
Debt market experts said LIC’s participation in bond FRAs could have a ripple effect — boosting demand for long-term government securities, but also narrowing forward spreads, potentially squeezing margins for other market players.
Analysts see the move as part of a broader evolution in LIC’s treasury operations, with the insurer deploying more sophisticated tools to navigate a dynamic interest rate environment. “When a player of LIC’s size starts actively using FRAs, it signals a maturing of India’s debt derivatives market,” said a senior bond trader.
LIC, one of the largest holders of government securities in the country, manages an investment portfolio worth several lakh crore rupees, making its trading decisions closely watched across financial markets.
