Reserve Bank of India (RBI) expands credit derivatives market by introducing credit index derivatives and total return swaps (TRS)

Key facts

• The Reserve Bank of India (RBI) issued the Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2026, replacing the February 2022 framework to permit derivatives on credit indices and total return swaps (TRS) on corporate bonds.
• The framework expands credit derivative products to include single-name credit default swaps (CDS), TRS, exchange-traded CDS on credit indices, and futures on credit indices across over-the-counter (OTC) markets and recognised stock exchanges.
• Eligible market-makers include scheduled commercial banks, standalone primary dealers, upper-layer and middle-layer non-banking financial companies (NBFCs), including housing finance companies, and select development finance institutions.
• Institutional investors permitted to act as protection sellers in CDS include insurance companies, pension funds, mutual funds, alternative investment funds, and foreign portfolio investors (FPIs).
• Resident non-retail users are eligible to buy credit protection without purpose restrictions if they possess a net worth of at least ₹500 crore or a turnover of at least ₹1,000 crore.
• Eligible reference assets comprise money market instruments, rated rupee corporate bonds and debentures, and certain unrated infrastructure-related bonds, while asset-backed securities, mortgage-backed securities, credit-enhanced bonds, and convertible bonds are excluded.
• The Fixed Income Money Market and Derivatives Association of India (FIMMDA) is directed to establish a Credit Derivatives Determinations Committee to manage credit, succession, and substitution events and settlement procedures.
• All OTC credit derivative transactions must be reported to the trade repository of the Clearing Corporation of India Ltd (CCIL) within 30 minutes of execution.