Interest Rate Derivatives Framework by RBI

India's central bank, the Reserve Bank of India (RBI), has issued a new framework for rupee interest rate derivatives. This framework aims to broaden market participation and deepen the onshore rates market.

Key Features

• Expansion of Market Participants:
  • Banks and primary dealers continue as market-makers.
  • Non-Banking Financial Companies-Upper Layer (NBFC-ULs) can now offer a broader range of products to both domestic and international clients.
  • Foreign entities gain greater flexibility, allowing them to take positions beyond pure hedging needs, within a system-wide exposure cap.
• Protections for Smaller Participants:
  • Retail users are restricted to simple, non-leveraged contracts such as swaps, forward rate agreements, and bought options.
  • Prohibition on retail users from selling options or engaging in premium-receiving structures.
• Implementation Timeline: Effective from March 2026.
• Regulatory Requirements:
  • Consolidation of two decades of fragmented circulars.
  • Near-real-time reporting of all trades, including those executed by offshore related parties.
  • All derivative contracts must reference RBI-authorised benchmark rates.