In terms of interest rate derivatives, apart from overnight index swaps (OIS), which has some volumes, there is not much traction in other exchange-traded or over-the-counter (OTC) derivatives market in the country, the official said.
"One reason why the participation is not happening, I don't know whether it is a cause or effect, is the absence of hedging culture," RBI chief general manager (financial markets regulation department), T Rabi Sankar, said at a CII financial market summit.
Recently, RBI came out with a draft guideline to allow non-residents to hedge their rupee interest rate risk flexibly using any available interest rate derivatives (IRD) instrument.
Sankar said one of the issuse that needs to be addressed in the government securities market is investor diversity.
"Some amount of diversification is happening. We are trying to expedite that and also trying to get more foreign investors (in the government bond market)," he said.
According to him, India should not follow practices of the developed market to improve efficiency of its financial market.
"If you want financial markets efficiency in India, don't read the book from developed market. You need to have your own book. Blindly importing policies is more likely than not to be a misadventure," he added.
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