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LIC Signs USD 1 Billion Forward Rate Agreements with JPMorgan and Bank of America to Manage Interest Rate Risks.

Banking & Finance | Dated: 30 Jul 2025

In July 2025, the Life Insurance Corporation of India (LIC), India’s largest insurance company, entered into Forward Rate Agreements (FRAs) worth USD 1 billion (approximately ₹8,300 crore) with two leading U.S.-based financial institutions—JPMorgan Chase & Co. and Bank of America (BoA). This move aims to shield LIC’s investments from the impact of declining interest rates and provide stable long-term returns amid rising market volatility.

🎯 Key Highlights:

  • - LIC’s decision to enter FRA transactions comes after its November 2024 announcement to foray into the bond derivatives market. The initiative marks a strategic financial maneuver to safeguard fixed income returns at a time when equity market fluctuations threaten the insurer's portfolio performance.
  • - By July 2025, LIC had already executed FRA trades worth USD 1 billion, making up nearly 38% of India's total FRA market volume, which stands at USD 2.6 billion. This highlights LIC’s dominant role in this evolving financial instrument segment within the Indian market.
  • - Forward Rate Agreements (FRAs) are derivative contracts where two parties agree on a fixed interest rate for borrowing or lending a notional amount at a future date. In this agreement, LIC locks in the interest rate today for future bond purchases, effectively mitigating potential future rate changes.

💡 Other Important Facts:

  • (i) In these contracts, the counterparty—usually a global bank like JPMorgan or BoA—takes on the interest rate fluctuation risk and is compensated with a premium. To minimize their exposure, banks typically purchase long-term bonds that align with the maturity date of the FRA, making these trades mutually beneficial.
  • (ii) This FRA initiative by LIC is part of a broader strategy to build resilience into its investment portfolio and ensure consistent returns, especially in a macroeconomic environment where central banks may reduce rates to stimulate economic activity.

📚 Test Your Knowledge:

Which Indian organization recently signed USD 1 billion worth of Forward Rate Agreements (FRAs) with JPMorgan and Bank of America?

Correct Answer: LIC

🚀 Quick Recap: