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RBI to Boost Corporate Bond Market with New Derivatives Framework

The Reserve Bank of India plans to issue a regulatory framework soon to introduce derivatives on credit indices and total return swaps on corporate bonds. This move, announced following the Union Budget, aims to improve credit risk management and boost liquidity in the corporate bond market. The RBI will also issue a revised framework providing greater flexibility to Authorised Dealers in foreign exchange products and risk management. Additionally, investments under the Voluntary Retention Route will now be counted under the General FPI investment limits, with added operational flexibilities for foreign investors.

Key Points: RBI to Issue New Norms for Corporate Bond Derivatives

  • New framework for credit index derivatives
  • Introduction of total return swaps on bonds
  • Revised FX rules for Authorised Dealers
  • VRR investments merged with General FPI limits
2 min read

RBI to issue new norms soon to rev up corporate bond market

RBI Governor announces new framework for credit derivatives and total return swaps to enhance corporate bond market liquidity and risk management.

"An active derivatives market can facilitate efficient management of credit risks, improve liquidity and efficiency in the corporate bond market - Sanjay Malhotra"

Mumbai, Feb 6

As part of the move to develop a corporate bond market, the RBI plans to issue a regulatory framework soon to enable the introduction of derivatives on credit indices and total return swaps on corporate bonds.

RBI Governor Sanjay Malhotra said that an active derivatives market can facilitate efficient management of credit risks, improve liquidity and efficiency in the corporate bond market and facilitate issuance of corporate bonds across the rating spectrum.

An announcement was made in the Union Budget speech delivered on February 1, 2026, that total return swaps on corporate bonds and derivatives on corporate bond indices will be introduced. Accordingly, a regulatory framework to enable the introduction of derivatives on credit indices and total return swaps on corporate bonds will be issued shortly for public feedback, he explained.

The RBI Governor further stated that the revised framework of allowing greater flexibility to Authorised Dealers with respect to foreign exchange products, risk management and platforms will be issued shortly for public consultation.

Banks and standalone primary dealers authorised under FEMA, 1999, access the foreign exchange market for market making, balance sheet management and hedging of risks. The regulatory framework governing the facilities for such Authorised Dealers (ADs) has been reviewed, rationalised and refined in view of the current market practices and requirements, domestically and globally, he explained.

The Governor also announced that the RBI has decided that investments under the Voluntary Retention Route (VRR) will now be reckoned under the limit for FPI investments under the General Route, and certain additional operational flexibilities will be provided to FPIs investing under the VRR.

The Voluntary Retention Route (VRR) was introduced by the Reserve Bank in March 2019 to provide an additional channel for investments by Foreign Portfolio Investors (FPIs) with long-term investment interest in the Indian debt markets. Over the years, the Bank has been recalibrating the Route to improve operational flexibility and ease of doing business.

The VRR has been witnessing active investment by FPIs, and over 80 per cent of the current investment limit of Rs 2.5 lakh crore has been utilised, he added.

- IANS

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Reader Comments

P
Priya S
Good to see forward movement after the budget announcement. But I hope the "public feedback" is genuine and not just a formality. Sometimes these frameworks are too complex for smaller companies to navigate. Simplification is key for wider participation.
R
Rohit P
More tools for risk management are always welcome! This should attract more foreign investment (FPI) as well, especially with the VRR changes. ₹2.5 lakh crore limit almost full shows strong confidence in India. Bullish on debt markets! 📈
M
Michael C
As someone working in finance here, the rationalization of rules for Authorised Dealers is long overdue. Global practices change fast, and our regulations need to keep pace. This should improve liquidity and make hedging more efficient for corporates.
S
Shreya B
All this sounds good for big companies and foreign investors. But what about retail investors like us? Will these new products be accessible to us, or will they remain in the domain of institutional players? Would love to see some avenues for common people to participate.
K
Karthik V
The intent is right, but execution is everything. We need strong oversight to prevent misuse of these derivative products. Remember the 2008 crisis? Hope RBI has learned from global history and builds robust safeguards. Jai Hind.

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