RBI allows all financial institutions to use credit default swaps

All financial institutions could now hedge their underlying credit risk in corporate bonds using credit default swaps, the Reserve Bank of India said in a notification on Monday.

Financial institutions include Export-Import Bank of India, National Bank for Agriculture and Rural Development, National Housing Bank and Small Industries Development Bank of India. Earlier, only commercial banks, primary dealers, non-banking finance companies, mutual funds, insurance companies, housing finance companies, provident funds, listed corporate and foreign institutional investors were permitted to use the credit default swap market.

The central bank has permitted other financial institutions as users to deepen the credit default swap market. Ever since its launch, only two swap deals have been struck, indicating the shallowness of the corporate bond market.

On November 30, the RBI had released guidelines pertaining to credit default swaps.