RBI Issues Final Credit Derivatives Directions, 2026

Press Release: 2026-2027/550, Dated: 25.06.2026

The Reserve Bank of India (RBI) has issued the Master Direction on Reserve Bank of India (Credit Derivatives) Directions, 2026. The Directions have been issued pursuant to the announcements made in the Union Budget 2026-27 and the Statement on Developmental and Regulatory Policies dated February 6, 2026.

The final Directions facilitate the introduction of credit index derivatives and total return swaps on corporate bonds, thereby expanding the credit derivatives market in India.

1. Final Directions Issued After Public Consultation

RBI had earlier issued draft directions on February 6, 2026, inviting comments from stakeholders.

After considering the feedback received during the consultation process, RBI has now issued the final Credit Derivatives Directions, 2026.

2. Introduction of Credit Index Derivatives

The Directions enable the introduction of credit index derivatives.

Credit index derivatives allow market participants to take or hedge exposure to a basket or index of credit instruments, rather than a single reference entity. This can help improve credit risk transfer and support the development of the corporate bond market.

3. Total Return Swaps on Corporate Bonds Permitted

The Directions also facilitate total return swaps on corporate bonds.

A total return swap enables transfer of the economic return of a corporate bond, including income and price movement, between counterparties without necessarily transferring ownership of the underlying bond.

4. Eligible Participants Covered

The Directions specify the categories of entities that may participate in credit derivative transactions.

They also lay down the framework for identifying entities eligible to act as market-makers in credit derivatives.

5. Market-Makers in Credit Derivatives

The Directions prescribe requirements for entities that may act as market-makers.

Market-makers play an important role in providing liquidity, pricing support and orderly development of the credit derivatives market.

6. Participants in Total Return Swaps

The framework also covers participants eligible to enter into total return swap transactions.

This is intended to ensure that participation in such products is appropriately regulated and aligned with risk management requirements.

7. Credit Derivative Transactions for Hedging

The Directions provide for credit derivative transactions with users for hedging purposes.

This enables eligible users to manage credit risk exposures arising from corporate bonds and other permitted instruments within the regulatory framework.

8. Exchange-Traded Credit Derivatives

RBI has also covered exchange-traded credit derivatives under the Directions.

This may support greater transparency, standardisation and market-based price discovery in credit derivative instruments.

9. Reporting and Customer Protection Norms

The Directions prescribe requirements relating to:

• Reporting of credit derivative transactions;
• Customer protection norms;
• Disclosure and conduct requirements; and
• Other regulatory safeguards.

These provisions aim to ensure market transparency and protect users participating in credit derivative transactions.

10. Credit Derivatives Determinations Committee

The Directions also provide for a Credit Derivatives Determinations Committee.

Such a committee is expected to play a role in determining credit events and other matters relevant to the settlement and functioning of credit derivative contracts.

11. Valuation Methodology

RBI has also covered the valuation methodology for credit derivatives.

A clear valuation framework is important to ensure consistency, transparency and proper risk measurement in credit derivative transactions.

12. Objective of the Directions

The Directions aim to:

• Develop the credit derivatives market in India;
• Enable credit index derivatives and total return swaps on corporate bonds;
• Support credit risk transfer and hedging;
• Improve liquidity and risk management in the corporate bond market;
• Provide a clear framework for eligible participants and market-makers; and
• Strengthen transparency, reporting and customer protection norms.

13. Expected Impact

The final Directions are expected to deepen India’s credit derivatives market and provide participants with additional tools for managing credit risk. They may also support the development of the corporate bond market by improving hedging options, liquidity and risk transfer mechanisms.

14. Key Takeaway

RBI has issued the Reserve Bank of India (Credit Derivatives) Directions, 2026, enabling credit index derivatives and total return swaps on corporate bonds. The Directions cover eligible participants, market-makers, hedging transactions, exchange-traded credit derivatives, reporting norms, customer protection, valuation methodology and the Credit Derivatives Determinations Committee.

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