RBI releases draft norms on Interest Rate Derivatives
The regulator has proposed that transactions undertaken by retail users should be restricted only for the propose of hedging an underlying interest rate risk.
April 03, 2019 / 21:18 IST
Reserve Bank of India (RBI) on April 3 issued draft regulations on Interest Rate Derivatives (IRDs) aimed at achieving consistency and ease of access for better management of interest rate risk in the economy.
An IRD is a financial derivative contract whose value is derived from one or more benchmark interest rates, price, interest rate instruments or interest rate indexes.
The regulator has proposed that transactions undertaken by retail users should be restricted only for the propose of hedging an underlying interest rate risk while non-retail participants would be allowed to undertake such transactions for other purposes also.
Non-retail participants include banks, insurance companies, mutual funds, pension funds, All India Financial Institutions and listed or unlisted companies with net worth of Rs 500 crore or equivalent.
The draft also states that users whose notional outstanding amount for all IRDs taken together reach Rs 1,000 crore shall report their risk positions at the end of every quarter.
The RBI has invited feedback from market participants before April 26.
On March 27, the RBI allowed non-residents to participate in IRDs with a view to deepening the Interest Rate Swap (IRS) market. The regulator added that foreign portfolio investors (FPIs) collectively can transact in interest rate futures (IRF) up to a limit of the net long position of Rs 5,000 crore.
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