RBI issues Master Direction on Rupee Interest Rate Derivatives 2025

The Reserve Bank of India (RBI) has issued Master Direction on Rupee Interest Rate Derivatives (IRD) 2025. The following persons would be eligible to participate in IRD markets:

1. A resident;
2. A non-resident, to the extent specified in these Directions.

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.

Interest Rate Derivatives on Recognised Stock Exchanges

A recognised stock exchange is permitted to offer any standardised IRD product and the product design, eligible participants and other details of the IRD product may be finalised by the exchange. The exchange shall obtain prior approval of the Reserve Bank before introducing any new IRD product or carrying out modifications to an existing product.

Any floating interest rate or price or index used in an exchange-traded IRD shall be a benchmark published by an FBA. A non-resident may transact in exchange-traded IRDs for the purpose of hedging.

A Foreign Portfolio Investor (FPI) is permitted to purchase or sell Interest Rate Futures (IRFs) subject to the following conditions:

1. The aggregate long position of all FPIs, each of whom has a net long position in any IRF instrument, shall not exceed ₹5,000 crore, aggregated across all IRF instruments; and
2. The total gross short (sold) position of any FPI shall not exceed its consolidated long position in Government securities and Interest Rate Futures, at any point in time.

Recognised stock exchanges shall ensure that users participating on the exchanges are made adequately aware of the risks associated with IRD products.

The market timings for undertaking an exchange-traded IRD transaction shall be as prescribed by the Securities and Exchange Board of India (SEBI), in consultation with the Reserve Bank.

Recognised stock exchanges shall furnish returns, documents and other information relating to IRD transactions to the Reserve Bank or any other agency as may be required by the Reserve Bank in the manner and format and within the time frame as may be specified by the Reserve Bank.

Any approval granted to a recognised stock exchange for introducing an IRD product prior to the issuance of these Directions shall be deemed to have been granted under these Directions.

Interest Rate Derivatives in the OTC Market

Market-makers

(i) The following entities shall be eligible to act as market-makers in IRDs:

1. A Scheduled Bank;
2. A Standalone Primary Dealer (SPD);
3. An NBFC – Upper Layer (NBFC-UL);
4. Export-Import Bank of India, National Bank for Agriculture and Rural Development, National Housing Bank, Small Industries Development Bank of India and National Bank for Financing Infrastructure and Development.

(ii) At least one of the parties to an interest rate derivative transaction shall be a market-maker or a central counterparty authorised by the Reserve Bank for the purpose.

User Classification Framework

(i) A User shall be classified by market-makers either as retail or non-retail for the purpose of offering interest rate derivative contracts.

(ii) The following shall be eligible to be classified as non-retail users:

1. An entity who is otherwise eligible to be a market maker;
2. An NBFC (including HFC), other than a market-maker;
3. An Insurance Company regulated by Insurance Regulatory and Development Authority of India (IRDAI);
4. A Pension Fund regulated by Pension Fund Regulatory and Development Authority (PFRDA);
5. A Mutual Fund regulated by SEBI;
6. An Alternative Investment Fund regulated by SEBI;
7. A resident with (a) minimum net worth of ₹500 crore; or (b) minimum turnover of ₹1,000 crore, as per the latest audited financial statements; and
8. A non-resident, other than an individual.
9. A user who is otherwise eligible to be classified as a retail user, subject to the condition that the user makes a request in this regard to the market-maker and the market-maker is satisfied that the user has the risk management capabilities suitable for classification as a non-retail user.

(iii) Any user who is not eligible to be classified as a non-retail user shall be classified as a retail user.

(iv) Any user who is otherwise eligible to be classified as a non-retail user shall have the option to request the market-maker to get classified as a retail user.

Products

(i) A Market-maker may offer the following IRD products to retail users:

1. Forward rate agreement;
2. Interest rate swap;
3. European interest rate call and put option, subject to the condition that retail user shall only buy these products;
4. Interest rate cap and interest rate floor, subject to the condition that retail user shall only buy these products; and
5. Interest rate collar and reverse interest rate collar, subject to the condition that the retail user shall not be a net receiver of premium.

(ii) A Market-maker may offer the following IRD products to non-retail users including users classified as non-retail in terms of Para 5.2 (ii)(i) of these Directions:

1. All products permitted to be offered to the retail users;
2. Interest rate swaption; and
3. Any other IRD product, including derivatives having cash instrument(s) and/or permitted derivative(s) as components but excluding leveraged derivatives and derivatives containing a derivative instrument as underlying.

(iii) A bank having an Authorised Dealer Category-I (AD Cat-I) license under FEMA, 1999, and an SPD authorized under section 10(1) of FEMA,1999, may offer FCS-IRD contracts to non-residents. These market-makers may also undertake transactions in FCS-IRD among themselves.

(iv) Scheduled Commercial Banks and SPDs authorised under section 10(1) of FEMA,1999, may offer transactions in IRDs based on the Modified Mumbai Interbank Forward Outright Rate (MMIFOR) to users. These market-makers may also undertake transactions in IRDs based on the MMIFOR among themselves.

(v) The IRD products that can be offered by a market-maker to a non-resident shall be subject to provisions specified in terms of para 5.4(iii) of these Directions.

Purpose

(i) A market-maker shall offer IRD products to a resident retail user (including a user who chooses to be classified as a retail user in terms of Para 5.2(iv) of these Directions) and to a resident user classified as non-retail user in terms of Para 5.2(ii)(i) of these Directions, only for the purpose of hedging.

(ii) A market-maker may offer IRD products to a resident non-retail user other than a user who is classified as a non-retail user in terms of Para 5.2(ii)(i) of these Directions without any restriction in terms of purpose.

(iii) A market-maker may, subject to the provisions specified under Para 5.5 of these Directions, offer IRD products, including FCS-IRD products to (a) non-resident individuals for the purpose of hedging and (b) non-residents, other than individuals, without any restriction in terms of purpose.

Provided that market-makers shall offer an IRD contract on Government Securities to a non-resident only for the purpose of hedging.

(iv) A market-maker shall offer IRD products based on MMIFOR to users only for the purpose of hedging.

Transactions with Non-residents

(a) A market-maker may undertake IRD transactions, including FCS-IRD transactions with a non-resident directly or by way of a back-to-back arrangement for the purpose of hedging interest rate risk or otherwise, subject to the following:

1. The back-to-back arrangement may be put in place through an overseas entity (including overseas branches, IFSC Banking Units (IBUs), wholly owned subsidiaries or joint ventures of market-makers) provided that the overseas entity is eligible to deal with derivatives in the capacity of a dealer / market-maker as per the host jurisdiction laws and regulations.
2. The wholly owned subsidiary / joint venture of a market-maker incorporated in India may undertake such transactions provided the wholly owned subsidiary / joint venture is a banking entity;
3. IRD transactions undertaken globally by the offshore related parties of the market-maker in India shall be reported individually by either the market-maker in India or its related party(ies) to the Trade Repository (TR) of Clearing Corporation of India Ltd. (CCIL) in terms of the Annex-II; and
4. The market-maker shall provide information regarding IRD transactions, including FCS-IRD transactions, undertaken through the overseas entity (including overseas branches, IBUs, wholly owned subsidiaries and joint ventures of the market-makers), as may be required by the Reserve Bank in the prescribed manner and time.

(b) IRD transactions, including transactions in FCS-IRD, by non-residents with market-makers undertaken for purposes other than hedging, shall be subject to an overall limit, as specified below:

i. The Price Value of a Basis Point (PVBP) of all outstanding IRD positions, including FCS-IRD positions shall not exceed the amount of ₹1,000 crore (PVBP cap).

Explanation: The PVBP cap shall be calculated by making a gross addition, ignoring mathematical signs, of the PVBP of each non-resident.

ii. Market-makers shall not offer any IRD/ FCS-IRD to a non-resident for purposes other than hedging after the PVBP cap is reached.

iii. CCIL shall monitor and publish the utilisation of the PVBP limit on a daily basis. CCIL shall also publish the methodology for calculation of the PVBP limit.

RBI Master Direction on Rupee Interest Rate Derivatives 2025 PDF