RBI Finalizes Rules for India's Credit Derivative Market Expansion
Quick Look
- India's Reserve Bank of India (RBI) issued final rules for expanding its credit derivative market, allowing resident non-retail users unrestricted use of instruments like credit default swaps, while limiting non-residents to hedging.
- Retail resident users (excluding individuals) can only use CDS for hedging, and the RBI rejected credit derivatives on loans.
AI-generated summary
Why It Matters
The federal finance minister proposed deepening India's credit derivative market in this year's budget.
BANGALORE: The Reserve Bank of India on Thursday issued final rules for a proposed expansion of the country's credit derivative market, after the federal finance minister proposed deepening it in this year's budget.
The rules will allow 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.
Here are some of the key rules in the final directions:
Retail resident users, except individuals, may undertake credit default swaps only for hedging
The Reserve Bank of India rejected a request to allow credit derivatives on loans
Credit derivative contracts with non-residents may be settled in Indian rupees or a foreign currency
The rules are applicable with immediate effect.
Open Questions
- How will non-retail users leverage unrestricted instrument use?
- What is the specific impact on market liquidity?
- How will the market react to the loan derivative rejection?
