RBI Unveils New Rupee Interest Rate Derivatives Framework: A Big Leap Toward Deeper & Safer Markets | Code‑B Blog
India’s derivatives market is set for a structural shift.
On Monday, the Reserve Bank of India (RBI) released a comprehensive Rupee Interest Rate Derivatives (IRD) Framework, aiming to deepen participation, modernize regulations, and expand market-making capabilities across a wider set of financial institutions.
The overhaul consolidates nearly 20 years of scattered circulars into a single, future-ready policy—and opens the door to broader domestic and international participation.
What’s New in the Framework?
Expanded Market-Maker Universe
Until now, market-making in IRDs was largely dominated by:
Banks
Primary Dealers
Under the new norms, NBFC-ULs (NBFCs in the Upper Layer under RBI’s scale-based framework) can now act as market-makers.
This enables them to:
Offer a wider range of derivative products
Serve both domestic and overseas clients
Strengthen competition and liquidity in the onshore rates market
Implication: A deeper IRD ecosystem, increased pricing efficiency, and more vibrant participation.
Foreign Entities Get More Flexibility
Foreign participants—earlier restricted to pure hedging—can now take positions beyond hedging, though under a system‑wide exposure cap.
This could:
Increase offshore participation within regulated onshore markets
Improve integration of India’s rates market with global flows
Reduce reliance on overseas non-transparent trading venues
Stronger Safeguards for Retail Investors
The RBI has tightened protections significantly.
Retail users are now allowed only simple, non-leveraged derivative products, including:
Interest Rate Swaps
Forward Rate Agreements
Bought options (long option positions only)
What’s Not Allowed For Retail:
Selling options
Entering into premium‑receiving structures
Any leveraged or complex derivative strategy
Reason: To ensure retail is not exposed to asymmetric downside risks.
Mandatory Transparency & Reporting
The framework requires:
Near‑real‑time reporting of all derivative trades
Inclusion of trades executed through offshore related parties
Use of RBI‑authorised benchmark rates for all contracts
This marks a major push toward:
Transparency
Surveillance
Market integrity
Effective Date: March 2026
Market participants have over a year to:
Upgrade systems
Align compliance frameworks
Train teams
Implement reporting mechanisms
Why This Matters
This is one of the most important reforms in India’s interest rate markets since the introduction of MIBOR.
The new framework:
Deepens the domestic rupee derivatives market
Reduces regulatory fragmentation
Opens doors for NBFC‑ULs and foreign entities
Enhances safety for retail users
Increases transparency and accountability
In essence, RBI is building a more liquid, scalable, globally aligned interest rate markets ecosystem—without compromising on risk controls.
Explore More Insights
For deeper understanding of how interest rate markets, wealth strategies, and macro policies shape India’s financial ecosystem, explore perspectives from Ranjit Jha (CEO) — a pioneer in research‑driven wealth advisory.
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