The Reserve Bank of India (RBI) has issued the final directions for expanding the country’s credit derivatives market, paving the way for wider use of instruments such as Credit Default Swaps (CDS) and total return swaps, as per a statement by the apex bank on Thursday.
This comes after the Union government proposed measures to deepen India’s credit derivatives market and strengthen risk management tools for market participants in the Union Budget 2026. The rules are applicable with immediate effect. “These Directions shall come into force on June 25, 2026,” said RBI.
As per the release, these rules will enable the resident Indian non-retail users to deploy instruments such as credit default swaps and total return swaps without any restrictions on purpose, while limiting the use of these instruments by non-resident users for hedging purposes.
Retail resident users, except individuals, may undertake credit default swaps only for hedging. “A resident retail user, other than an individual, shall be allowed to buy protection only for the purpose of hedging,” it said.
Furthermore, credit derivative contracts with non-residents may be settled in Indian rupees or a foreign currency as per the latest rules. Under the rules, insurance companies, pension funds, mutual funds, alternative investment funds (AIFs) and foreign portfolio investors (FPIs) shall be eligible to act as protection sellers.
The central bank has further stated that it has examined and modified the draft directions based on the feedback and incorporated them in the final Master Directions.
“The feedback received on the draft directions has been examined and consequent modifications have been suitably incorporated in the final Master Directions,” it added.
Giving directions for exchange traded credit derivatives, it noted exchanges may offer standardised single-name CDS contracts and CDS contracts on credit indices with guaranteed settlement however, before launching any CDS product, exchanges must obtain RBI approval for product design, changes in product design, eligible participants and other details of CDS contracts.
RBI is allowing Foreign Portfolio Investors (FPIs) to trade credit index futures, but with safeguards to prevent excessive speculation, for example, FPIs cannot take excessive short (sell) positions and cannot trade credit index futures linked to very short-term debt instruments.