RBI releases draft regulations on rupee interest rate derivatives

The Reserve Bank of India on Monday issued draft regulations for Rupee Interest Rate Derivatives to align the extant regulatory framework with the market and other related developments.

The extant regulatory framework for Rupee Interest Rate Derivatives (IRD) was issued in June 2019.

Since then, there have been several new developments in the market, including the emergence of new products as well as the participation of non-residents in the market.

"Accordingly, a comprehensive review of the IRD Directions was undertaken, and the draft directions have been prepared to align it with the market and other related developments," RBI said while issuing the 'Draft Master Direction -Reserve Bank of India (Rupee Interest Rate Derivatives) Directions, 2025'.

'Interest Rate Derivative' means a financial derivative contract whose value is derived from one or more rupee interest rate, prices of rupee interest rate instruments, or rupee interest rate indices.

According to the draft, a non-resident may undertake IRD transactions through its central treasury or its group entity, where applicable.

"In case of such transactions, the market-maker shall ensure that the central treasury / group entity is appropriately authorised by the user to deal for and on its behalf," said the draft on which the RBI has sought comments from banks, market participants and other interested parties by July 7, 2025.

The reporting requirements under the draft directions have also been rationalised to reduce compliance burden.

Separately, a requirement for reporting of IRD transactions undertaken globally is proposed to be introduced with a view to enhancing transparency in the Rupee IRD market.