RBI Issues Final Rules to Expand India’s Credit Derivatives Market
The Reserve Bank of India (RBI) has issued its final guidelines to expand the country’s credit derivatives market, following the government’s proposal to deepen financial markets in this year’s Union Budget. The new rules take immediate effect and are aimed at improving risk management tools for market participants.
Under the revised framework, resident Indian non-retail users can freely use credit derivatives such as credit default swaps (CDS) and total return swaps (TRS) without restrictions on their purpose. Non-resident users, however, will be permitted to use these instruments only for hedging their existing exposures.
The RBI also clarified that retail resident users, except individuals, may use credit default swaps solely for hedging purposes. Additionally, the central bank rejected proposals to allow credit derivatives on loans, while permitting contracts involving non-residents to be settled in either Indian rupees or foreign currencies.
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