MUMBAI, July 16 Reuters A lack of arbitrage opportunities and narrow price action are prompting bankers to scale back on their activities in the Indian rupee forwards market, leading to a drop in volumes.

Volumes between banks in the dollarrupee forward market dropped 36 in the AprilJune period from the previous quarter, according to CCIL data. Volumes were marginally up in the same period last year.

The dollarrupee forward premium market is used by companies to hedge their future foreign currency receivables and payments. Banks have dedicated desks to manage the risk passed on by companies.

The scant arbitrage opportunities between the local overthecounter market and nondeliverable forwards amid a rangebound rupee and muted volatility in forwards are largely responsible for the drop in volumes, bankers said.

There is no juice in the market and client flows have reduced considerably amid rangebound spot and forwards, said Apurva Swarup, vice president at Shinhan Bank India.

The 1year implied yield on the dollarrupee forward was in a 15basis points bps range in the AprilJune period, compared with about a 40bps band in each of the previous two quarters.

When there is this little movement, the risk appetite of banks increases. This leads to client flows being absorbed by them instead of being sent to the market, a senior banker at a midsized foreign lender said.

Trading in the forwards market has moved away from constant volumes to pockets of action during the…