RBI Releases Final Framework for Credit Derivatives Market

The Reserve Bank of India (RBI) has notified the final Master Directions on Credit Derivatives, introducing a comprehensive regulatory framework aimed at expanding India's credit derivatives market. The directions have come into effect from June 25, 2026, and are intended to strengthen risk management mechanisms while facilitating broader participation in credit derivative instruments.

The revised framework aligns with the Union Government's objective announced in the Union Budget 2026 to deepen India's financial markets and improve the availability of modern risk mitigation products.

Broader Access to Credit Default Swaps and Total Return Swaps

Under the final directions, resident non-retail participants are permitted to use Credit Default Swaps (CDS) and Total Return Swaps (TRS) without restrictions on the underlying purpose. In contrast, non-resident participants may use these instruments exclusively for hedging purposes, ensuring that speculative activity remains appropriately regulated.

Conditions for Retail Participants

The framework provides that resident retail users, other than individuals, may purchase protection through Credit Default Swaps solely for hedging their credit exposure. Individual retail participants are not permitted to undertake such transactions under the prescribed framework.

Settlement and Eligible Protection Sellers

The RBI has also permitted credit derivative transactions involving non-residents to be settled either in Indian Rupees or an approved foreign currency, depending on the applicable transaction structure.