RBI issues final norms to expand credit derivatives market, allows wider CDS use
New Delhi, June 26
The Reserve Bank of India has issued the final directions for expanding the country's credit derivatives market, paving the way for wider use of instruments such as Credit Default Swaps and total return swaps, as per a statement by the apex bank on Thursday.
This comes after the Union government proposed measures to deepen India's credit derivatives market and strengthen risk management tools for market participants in the Union Budget 2026. The rules are applicable with immediate effect. "These Directions shall come into force on June 25, 2026," said RBI.
As per the release, these rules will enable the resident Indian non-retail users to deploy instruments such as credit default swaps and total return swaps without any restrictions on purpose, while limiting the use of these instruments by non-resident users for hedging purposes.
Retail resident users, except individuals, may undertake credit default swaps only for hedging. "A resident retail user, other than an individual, shall be allowed to buy protection only for the purpose of hedging," it said.
Furthermore, credit derivative contracts with non-residents may be settled in Indian rupees or a foreign currency as per the latest rules. Under the rules, insurance companies, pension funds, mutual funds, alternative investment funds (AIFs) and foreign portfolio investors (FPIs) shall be eligible to act as protection sellers.
The central bank has further stated that it has examined and modified the draft directions based on the feedback and incorporated them in the final Master Directions.
"The feedback received on the draft directions has been examined and consequent modifications have been suitably incorporated in the final Master Directions," it added.
Giving directions for exchange traded credit derivatives, it noted exchanges may offer standardised single-name CDS contracts and CDS contracts on credit indices with guaranteed settlement however, before launching any CDS product, exchanges must obtain RBI approval for product design, changes in product design, eligible participants and other details of CDS contracts.
RBI is allowing Foreign Portfolio Investors (FPIs) to trade credit index futures, but with safeguards to prevent excessive speculation, for example, FPIs cannot take excessive short (sell) positions and cannot trade credit index futures linked to very short-term debt instruments.
— ANI
Reader Comments
Finally! This will give Indian banks and corporates the flexibility to manage credit risk better. The restriction on retail users (except individuals) for hedging only makes sense — you don't want common people dabbling in complex swaps. RBI's gradual approach is wise.
My concern: insurance companies being allowed as protection sellers. They are supposed to be conservative investors. What if they take too much risk with policyholder money? But overall, this is a step towards global standards. Just hope regulators monitor systematically.
As someone working in treasury, this is great news! Total return swaps will open up new avenues. But the RBI approval for each CDS product on exchanges seems a bit bureaucratic. Can slow down innovation. Still, good to see India modernising its financial markets. Cheers! 🎉
Budget 2026 promised market reforms, and RBI has delivered. But the real test is corporate awareness and liquidity — if no one trades these instruments, it'll just be paper. Let's hope the BSE and NSE create vibrant markets. Better risk management = stronger economy. 🇮🇳👍
Impressive regulatory clarity from RBI. Comparing to global markets, this is a smart move to attract foreign investors. Allowing FPI participation with guardrails is exactly what emerging markets need. India continues to show mature policymaking.
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