RBI Issues Master Direction on Rupee Interest Rate Derivatives, 2025
The Reserve Bank of India (RBI) has released the final Master Direction – Rupee Interest Rate Derivatives (IRD) Directions, 2025, marking a significant step toward strengthening transparency, risk management, and regulatory oversight in India’s interest rate derivatives market. These Directions, issued under Section 45W of the RBI Act, 1934, will come into effect from March 1, 2026, and supersede earlier guidelines specified in Annex-I.
The Directions apply to all Rupee interest rate derivative transactions undertaken both in the over-the-counter (OTC) market and on recognised stock exchanges. They cover a wide range of market participants including residents and specified categories of non-residents. Non-residents can also transact through their central treasury or authorised group entities, provided appropriate authorisation is ensured.
Exchange-Traded IRD Framework
Recognised stock exchanges may introduce any standardised IRD product, subject to prior RBI approval. All floating rates or indices used in exchange-traded derivatives must be benchmarks published by Financial Benchmark Administrators (FBAs). Foreign Portfolio Investors (FPIs) are allowed to take positions in Interest Rate Futures (IRFs) within specified long and short limits. Exchanges are required to ensure that participants are adequately informed of risks and must regularly submit transaction data to RBI.
OTC IRD Market Regulations
The OTC market framework identifies eligible market-makers, which include Scheduled Banks, Standalone Primary Dealers, NBFC–Upper Layer entities, and select financial institutions. All IRD transactions must involve at least one authorised market-maker or a central counterparty.
Participants are classified as retail or non-retail, with product availability and permissible purposes varying by category. Retail users can access basic IRD products such as interest rate swaps, forward rate agreements, and purchased options. Non-retail users, depending on their profile, may access a wider range of products including swaptions and structured derivatives.
Non-Resident Participation and Limits
Non-residents may undertake IRD transactions, including Forward Rate Agreement–Currency Swap–IRD (FCS-IRD) structures, either directly or through back-to-back arrangements with overseas affiliates. For transactions undertaken for purposes other than hedging, RBI has introduced an aggregate Price Value of a Basis Point (PVBP) cap of ₹1,000 crore to limit excessive risk build-up. CCIL will monitor and publish daily utilisation of this limit.
Reporting, Compliance and Supervision
Robust reporting requirements mandate timely submission of all OTC IRD transactions to the Trade Repository of CCIL. Cross-border remittances linked to IRDs must be reported monthly through the Centralised Information Management System (CIMS). Market participants must comply with applicable prudential norms, accounting standards, and anti-abuse regulations.
RBI retains the authority to seek information, publish anonymised market data, and impose penalties, including temporary market exclusion, for violations.
