pc
nid 93528
Jun 26, 2026
pthandapani@vixio.com
India
Reserve Bank of India
financial services
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2059 charsIndia's Reserve Bank Issues Master Direction on Credit Derivatives Effective Immediately
On June 25, 2026, the Reserve Bank of India (RBI) issued the Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2026, establishing a comprehensive regulatory framework for credit derivative transactions in Indian financial markets. The directions come into force with immediate effect and supersede previous guidance issued in February 2022.
The framework permits credit default swaps (CDS) and total return swaps (TRS) on over-the-counter (OTC) markets and recognised stock exchanges. Eligible market-makers include scheduled commercial banks (excluding small finance banks, payment banks, local area banks and regional rural banks), standalone primary dealers, non-bank financial companies (NBFCs) in the upper and middle layers, and specified development financial institutions. Users are classified as retail or non-retail, with non-retail status available to NBFCs, insurance companies, pension funds, mutual funds, alternative investment funds, resident companies meeting minimum net worth or turnover thresholds, and foreign portfolio investors (FPIs).
The directions establish restrictions on eligible reference entities and obligations. Reference obligations must be rated or unrated Indian rupee corporate bonds and debentures, or money market debt instruments. Asset-backed securities, mortgage-backed securities, and structured obligations are prohibited. Retail users may only buy CDS protection for hedging purposes, while non-retail users face no restrictions. FPIs selling CDS protection are subject to a 5 percent limit on the outstanding stock of corporate bonds.
The Fixed Income Money Market and Derivatives Association of India (FIMMDA) must establish a Credit Derivatives Determinations Committee to determine credit events, settlement procedures, and auction mechanisms. Market-makers must report all transactions to the Clearing Corporation of India Ltd. (CCIL) within 30 minutes. The framework incorporates prudential norms, capital requirements, and accounting standards applicable to respective regulators.
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2062 charsReserve Bank of India Issues Directions on Credit Derivatives
The Reserve Bank of India (RBI) has issued the Master Direction - Reserve Bank of India (Credit Derivatives) Directions, 2026.
The issued directions contain:
New definitions for key terms including "Credit Default Swap (CDS)", "Total Return Swap (TRS)", "Future on credit indices", "Market-maker", "Credit event", "Deliverable obligation", "Reference asset", and the specific frameworks classifying market participants as retail or non-retail users.
Regulations prescribing permitted products and participants for credit derivatives, stipulating that resident retail users can only buy protection for hedging purposes, whereas non-retail users and market-makers can engage in CDS and TRS contracts without purpose restrictions.
Specific rules mandating market-makers to report all OTC credit derivative transactions to the Clearing Corporation of India Ltd. (CCIL) trade repository within 30 minutes, ensure at least one party to a transaction is a market-maker or authorized central counterparty, and strictly avoid offering CDS or TRS contracts to individuals.
Provisions outlining user eligibility and investment limits, entitling resident companies with a minimum net worth of INR 5bn crore (US$52,800,038) or a minimum turnover of INR 10bn (US$105,600,077) to be classified as non-retail users, while capping the notional amount of CDS protection sold by all Foreign Portfolio Investors (FPIs) at 5 percent of the outstanding stock of corporate bonds.
Administrative measures detailing the establishment of a Credit Derivatives Determinations Committee by FIMMDA to make factual determinations regarding credit, substitution, or succession events—and establishing standardized procedures for the cash and auction settlement of CDS contracts.
Directives requiring exchanges to obtain prior RBI approval for the product design of CDS and futures contracts on credit indices, and prohibiting market participants from undertaking credit derivative transactions involving reference entities that are related parties.
The directions take immediate effect.