Brief Overview:
Following the Union Budget 2026, which underscored the need to deepen India’s bond market and pave the way for Total Return Swaps (TRS) on corporate bonds as well as derivatives on corporate bond indices, the Reserve Bank of India.
Comments on the draft directions is to be sent by 27th February 2026.
Technical Details:
Key Highlights
1) Expanded definition of credit derivatives to include indices composed of underlying debt instruments.
2) Resident companies may now qualify as non‑retail users if they meet a minimum turnover threshold of ₹1,000 crore.
3) Market makers may offer TRS:
(a) To resident non‑individuals without purpose restrictions; and
(b) To non‑residents strictly for hedging purposes.
4) A Underlying reference to a CDS or TRS or credit index for exchange‑traded CDS must:
(a) Use eligible underlying instruments; and
(b) Be published by benchmark administrators authorised by RBI or SEBI.
5) Exchange‑Traded Futures Requirements:
Exchanges may offer futures on credit indices only if the index
(a) consists exclusively of eligible debt instruments;
(b) is administered as per SEBI directions;
(c) If the index contains money‑market debt instruments, it must be published by an RBI‑authorised financial benchmark administrator; and
(d) Prior RBI approval is required for product design, changes, eligible participants, and other contract features.
6) FPI Participation Conditions
(a) FPI long positions in credit‑index futures will count toward their corporate debt investment limits; and
(b) Gross short positions cannot exceed consolidated long positions in bonds plus credit‑index futures.
7) FPIs are prohibited from participating in futures where the underlying index includes money‑market debt instruments.
Takeaways:
The draft amendments substantially widen the credit derivatives framework by permitting products linked to indices of underlying debt instruments, expanding user eligibility, and strengthening benchmark standards. They set out clearer rules for Total Return Swaps, including participant‑level restrictions and benchmark requirements, while introducing more robust index‑based norms for CDS and futures in line with global best practices. Together, these changes represent a meaningful step toward reinforcing market infrastructure and broadening the suite of credit‑risk management tools available to market participants.
For further details, please see:
Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2022
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