More Stories

Informist, Monday, Dec. 8, 2025

--RBI issues final master direction on rupee interest rate derivatives

MUMBAI – The Reserve Bank of India Monday issued a final master direction on rupee interest rate derivatives and said it would implement the norms starting Mar. 1. The norms will modify directions issued in June 2019 to deal with the emergence of new products and the participation of non-residents in the market, which has necessitated a comprehensive review of the extant norms, the central bank said.

The RBI had issued the draft directions in June and sought comments by Jul. 7. Most of the draft norms have made their way into the final directions, including the reporting of rupee interest rate derivative transactions from offshore related parties and restrictions on foreign portfolio investors' exposure to the market.

Foreign portfolio investors can buy or sell interest rate futures provided the aggregate long position of all such investors across all instruments does not exceed INR 50 billion, the directions said, with the limit unchanged from the draft. The total gross short position of any FPI should also not be higher than its consolidated long, or buy, position in government securities and interest rate futures. 

Derivatives transactions, including those settled in foreign currency between market-makers and non-residents for purposes other than hedging, shall be subject to an overall limit of INR 10 billion as price value of a basis point of all outstanding positions. After the cap is reached, market-makers can only offer derivatives to non-residents for hedging.

"CCIL (Clearing Corp. of India Ltd.) shall monitor and publish the utilisation of the PVBP limit on a daily basis. CCIL shall also publish the methodology for calculation of the PVBP limit," as per the draft norms.

The new guidelines still differentiate between market-makers and other users. Both residents and non-residents are eligible to participate in interest rate derivative markets, the RBI said. A non-resident can conduct transactions through its central treasury or group entity, and the market-maker will ensure that proper authorisation has been given by the user to such an entity to make trades.

According to the final norms, a market-maker other than a standalone primary dealer shall report the necessary details of all offshore rupee interest rate derivative transactions conducted by offshore related parties to the trade repository of CCIL. The related entity may also choose to report the transaction independently. All rupee derivatives transactions undertaken globally by related parties of domestic market-makers must be reported, the RBI said. Standalone primary dealers must follow extant report requirements for them as detailed by the central bank. 

Back-to-back transactions by related parties with other market makers do not need to be reported, the RBI said. A contract with a gross notional value below $1 million or equivalent is also exempted. The regulator said transactions reported by a market-maker should be 80% of the gross notional value of all interest rate derivative transactions undertaken offshore by offshore related parties by Jan. 1, 2027, climbing to 90% by Jan. 1, 2028. 

Market-makers include scheduled banks, standalone primary dealers, an upper-layer non-banking finance company, or an all-India financial institution. At least one counterparty in a derivatives trade must be a market-maker or a central counterparty designated by the RBI.

Users are in two categories, with those not falling into the non-retail category becoming a retail user, the RBI said. Non-retail users can be non-banking finance companies, including housing finance companies, an insurer or pension fund regulated by the sectoral regulators, and mutual funds and alternative investment funds regulated by SEBI. Residents with a minimum net worth of INR 5 billion or a minimum turnover of INR 10 billion or a non-resident who is not an individual can also be classified as non-retail users. Non-retail users can request the market-maker to classify them as retail users, and the market-maker can also classify otherwise retail users as non-retail provided they have the risk management capability for the role.

Market-makers can offer forward rate agreements and interest rate swaps to retail users without caveats. European interest rate call and put options and interest rate cap and floor can also be provided, given the condition that a retail user buys only that category of products. A retail user may also get access to an interest rate collar and a reverse interest rate collar, provided they are not a net receiver of premium. 

Non-retail users get all the products allowed for retail users, as well as interest rate swaption and any other interest rate derivative product having cash or permitted derivatives as components but excluding leverage derivatives and derivatives with a derivative instrument as the underlying, the same tenet as the draft norms. Authorised Dealer Category-I banks and standalone primary dealers can offer foreign currency-settled interest rate derivatives to non-residents only, as well as trade among themselves. They can trade derivatives in the Modified Mumbai Interbank Forward Outright Rate only among themselves, as per the draft norms.

Market-makers shall offer derivatives to resident retail users and even those non-retail users which have been deemed so by market-makers only for hedging, the draft said. Other resident non-retail users can get these products without restriction. Foreign currency-settled derivatives can be offered to non-resident individuals freely, except for individuals who can only use them to hedge. Market-makers shall offer an interest rate derivatives contract on government securities to a non-resident only as a hedge, the RBI said. Similarly, products on the modified Mumbai Interbank Forward Outright Rate products can also only be offered to hedge.

All over-the-counter derivatives transactions other than some foreign currency deals and structured derivatives undertaken by market-maker or its overseas arm must be reported within 30 minutes by market-makers. Foreign currency-settled derivatives with non-residents have to be reported before 1200 IST the following business day. Structured derivatives deals must be reported by the close of CCIL's trade repository the same day. 

All elements of a covered transaction must be reported to CCIL, providing meaningful information about the deal. "The central counterparty may be reported as the counterparty only in cases where the financial transaction is undertaken on an anonymous trading platform and is cleared by the central counterparty," according to the RBI. Cross-border remittances arising out of derivatives transactions for every month must also be reported to the RBI by the 10th of the following month.

The RBI also expanded regulation for exchange-traded derivatives. Any recognised stock exchange can offer a standardised derivative product with internal guidelines on design and eligible participants. The exchange will need the RBI's permission before introducing an interest rate derivative product or modifying an existing one. Any exchange-traded interest rate derivative shall use a floating rate of interest, price, or index as a benchmark provided by a financial benchmark administrator. Non-residents can trade on exchange-traded derivatives to hedge their interest rate exposure.  End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Aaryan Khanna

Edited by Deepshikha Bhardwaj

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2025. All rights reserved.