RBI proposes to deepen debt markets with new corporate bond index derivatives

Reserve Bank of India

The Reserve Bank of India plans to introduce the regulatory framework for derivatives on corporate bond indices and total return swaps (TRS), governor Sanjay Malhotra said on February 6.

“In pursuance of the announcement made in the Union Budget 2026-27, we propose to issue the regulatory framework for derivatives on corporate bond indices and total return swaps on corporate bonds,” Malhotra said sharing the outcome of bi-monthly monetary policy review.

Earlier this week, the Budget 2026 spelled out a series of initiatives to deepen the corporate bond market. Finance minister Nirmala Sitharaman proposed to introduce total return swaps on the bonds and an incentive for municipalities to help them raise funds.

“An active derivatives market can facilitate efficient management of credit risks, improve liquidity and efficiency in the corporate bond market and facilitate issuance of corporate bonds across the rating spectrum,” the central bank said in a statement.

A total return swap refers to a mechanism where investors can receive a bond’s return, which includes the interest and price changes, without actually owning a bond.

As expected, the RBI held repo rate steady at 5.25 percent during the first monetary policy review of the year and retained its neutral stance. Since February 2025, the central bank has cumulatively cut 125 basis points (bps), with its last cut during the December MPC review.