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Informist, Monday, Mar. 10, 2025

MUMBAI – The Insurance Regulatory and Development Authority of India has notified directions allowing insurers to enter forward contracts in government securities to hedge their risks. Insurers can only undertake long positions on a bond forward, the regulator said. 

A bond forward is an interest rate derivatives contract in which one party agrees to buy a government bond from another party on a specified date for a specified price determined when the contract is written. These products were not permissible in India until the Reserve Bank of India amended the norms in February to allow such instruments that the RBI permits. On Feb. 21, the central bank notified directions for forward contracts in government securities, which will come into effect on May 2.

Bond forwards are not allowed for unit-linked insurance plans, the regulator said. Insurers must also abide by norms laid down by the RBI and Fixed Income Money Market and Dealers Association of India with regard to bond forwards, the regulator said. Insurers must also report the bond forward transactions on quarterly basis in line with reports stipulated for interest rate forward rate agreements, and comply with existing guidelines on settlement and market conventions, as amended from time to time.  End

Reported by Srijita Bose

Edited by Deepshikha Bhardwaj

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