Reserve Bank of India (Credit Derivatives) Directions, 2026

RBI/FMRD/2026-27/407 FMRD.DIRD.No.02/14.03.046/2026-27 June 25, 2026

To All participants in credit derivatives markets

Dear Sir/Madam,

Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2026

Please refer to Paragraph 13 of the Statement on Developmental and Regulatory Policies announced as a part of the Bi-monthly Monetary Policy Statement for 2025-26 dated February 06, 2026, regarding the introduction of derivatives on credit indices and total return swaps on corporate bonds. Accordingly, draft directions were released for public comments on February 06, 2026.

2. Based on the feedback received, the Directions have since been finalised and issued herewith.

3. These Directions have been issued by the Reserve Bank in exercise of the powers conferred under section 45W of the Reserve Bank of India Act, 1934, and of all the powers enabling it in this behalf.

4. These Directions shall be applicable from immediate effect.

Yours faithfully

(Dimple Bhandia) Chief General Manager

RESERVE BANK OF INDIA FINANCIAL MARKETS REGULATION DEPARTMENT 9TH FLOOR, CENTRAL OFFICE, FORT MUMBAI 400 001

Notification No. FMRD.DIRD. 03/14.03.004/2026-27 dated June 25, 2026

Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2026

In exercise of the powers conferred under section 45W of the Reserve Bank of India Act, 1934 (02 of 1934) (hereinafter called the Act) read with section 45U of the Act and in supersession of FMRD.DIRD.11/14.03.004/2021-22 dated February 10, 2022 and A.P. (DIR Series) Circular No. 23 dated February 10, 2022, the Reserve Bank of India (hereinafter called the Reserve Bank) hereby issues the following Directions.

A reference is also invited to the Foreign Exchange Management Act, 1999 (42 of 1999), Foreign Exchange Management (Debt Instruments) Regulations, 2019 (Notification No. FEMA. 396/2019-RB dated October 17, 2019) and Master Direction – Reserve Bank of India (Non-resident Investment in Debt Instruments) Directions, 2025, dated January 7, 2025, as amended from time to time.

1. Short title, scope, and commencement

• (i) These Directions shall be called the Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2026.
• (ii) These Directions shall apply to credit derivatives transactions undertaken in Over-the-Counter (OTC) markets and on recognised stock exchanges in India.
• (iii) These Directions shall come into force on June 25, 2026.

2. Definitions

• (i) In these Directions, unless the context otherwise requires:
  • (a) ‘Auction settlement’ of CDS means a settlement process in which the price of the reference/deliverable obligation at which the settlement will happen is determined through an auction mechanism.
  • (b) ‘Cash settlement’ of CDS means a settlement process in which the protection seller pays to the protection buyer, the notional amount of the CDS contract less the expected recovery value of the reference obligation.
  • (c) ‘Central counterparty’ means an entity that interposes itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer and thereby ensuring the performance of open contracts.
  • (d) ‘Company’ shall have the same meaning as assigned to it in Section 2(20) of the Companies Act, 2013 (18 of 2013).
  • (e) ‘Corporate bonds and debentures’ mean non-convertible debt securities which create or acknowledge indebtedness and include debentures, bonds and such other securities issued by a body corporate or a trust or any statutory body constituted by virtue of a legislation, whether constituting a charge on the assets of the issuer or not, but excludes money market debt instruments, security receipts, securitised debt instruments and bonds issued by the Central Government or a State Government, or such other persons as may be specified by the Reserve Bank.
  • (f) ‘Credit Default Swap (CDS)’ means a credit derivative contract in which one counterparty (protection seller) commits to pay to the other counterparty (protection buyer) in the case of a credit event with respect to a reference entity and in return, the protection buyer makes periodic payments (premium) to the protection seller until the maturity of the contract or the credit event, whichever is earlier.
  • (g) ‘Credit derivative’ means a derivative contract whose value is derived from the credit risk of an underlying debt instrument or from an index of underlying debt instruments.
  • (h) ‘Credit event’ means a pre-defined event in a credit derivative contract, which triggers a settlement under the contract.
  • (i) ‘Deliverable obligation’ means a debt instrument issued by the reference entity that the protection buyer can deliver to the protection seller in a physically settled CDS contract, in case of occurrence of a credit event.
  • (j) ‘Electronic Trading Platform (ETP)’ shall have the same meaning as assigned to it in Paragraph 2 (iii) of Master Direction – Reserve Bank of India (Electronic Trading Platforms) Directions, 2025 dated January 16, 2025, as amended from time to time.
  • (k) ‘Exchange’ shall mean ‘recognised stock exchange’ and shall have the same meaning as assigned to it in Section 2(f) of the Securities Contract Regulation Act, 1956 (42 of 1956).
  • (l) ‘Future on credit indices’ means a standardised derivative contract, traded on a recognised stock exchange, to buy or sell an index of underlying debt instruments at a specified future date, at a price determined at the time of the contract.
  • (m) ‘Government-related entity’ shall have the same meaning as assigned to it in Paragraph 9 of Indian Accounting Standard (Ind AS) 24: Related Party Disclosures.
  • (n) ‘Hedging’ means the activity of undertaking a credit derivative transaction to reduce credit risk of a particular debt instrument or a portfolio of debt instruments.
  • (o) ‘Infrastructure company’ means a company engaged primarily in activities related to specific infrastructure sub-sectors listed under the Harmonized Master List of Infrastructure Sub-sectors notified by Department of Economic Affairs, Ministry of Finance, Government of India, via gazette notification no. F.No.13/6/2009-INF dated April 08, 2016, as amended from time to time.
  • (p) ‘Market-maker’ means an entity which provides prices to users and other market-makers.
  • (q) ‘Money market debt instruments’ mean commercial papers and non-convertible debentures of original or initial maturity up to one year as defined under the Master Direction – Reserve Bank of India (Commercial Paper and Non-Convertible Debentures of original or initial maturity up to one year) Directions, 2024, issued vide Notification No. FMRD.DIRD.09/14.02.001/2023-24 dated January 03, 2024 as amended from time to time and certificates of deposit as defined under the Master Direction – Reserve Bank of India (Certificate of Deposit) Directions, 2021, issued vide Notification No. FMRD. DIRD.03/14.01.003/2021-22 dated June 04, 2021, as amended from time to time.
  • (r) ‘Net worth’ shall have the same meaning as assigned to it in Section 2(57) of the Companies Act, 2013 (18 of 2013).
  • (s) ‘Over-the-Counter (OTC) markets’ mean the markets where transactions are undertaken in any manner other than on exchanges and shall include electronic trading platforms (ETPs).
  • (t) ‘Person resident outside India’ shall have the same meaning as assigned to it in Section 2(w) of Foreign Exchange Management Act, 1999 (42 of 1999).
  • (u) ‘Physical settlement’ of CDS means a settlement process in which the protection buyer delivers any of the eligible deliverable obligations to the protection seller against the receipt of notional amount of the CDS contract.
  • (v) ‘Reference asset’ means a debt instrument issued by a reference entity or an index of underlying debt instruments and specified in a total return swap contract.
  • (w) ‘Reference entity’ means an entity, against whose credit risk, a credit derivative contract is entered into.
  • (x) ‘Reference obligation’ means a debt instrument issued by the reference entity and specified in a CDS contract for the purpose of valuation of the contract and for determining the cash settlement value or the deliverable obligation in case of occurrence of a credit event.
  • (y) ‘Related party’ shall have the same meaning as assigned to it under Paragraph 9 of Indian Accounting Standard (Ind AS) 24 – Related Party Disclosures.
  • (z) ‘Resident’ shall mean a ‘person resident in India’ and shall have the same meaning as assigned to it in section 2(v) of the Foreign Exchange Management Act, 1999 (42 of 1999).
  • (aa) ‘Single-name CDS’ means a CDS contract in which the underlying is a single reference entity.
  • (bb) ‘Substitution event’ means any event that results in the reference obligation being replaced by another obligation issued by the reference entity.
  • (cc) ‘Succession event’ means any event that results in the reference entity no longer being the primary obligor for the reference obligation.
  • (dd) ‘Total Return Swap (TRS)’ means a credit derivative contract under which one counterparty (total return payer) commits to transfer the entire economic performance of a reference asset to the other counterparty (total return receiver), and, in return, receives a pre-determined fixed or floating rate linked to a benchmark.
  • (ee) ‘User’ means a person that undertakes derivative transactions other than as a market-maker.
• (ii) Words and expressions, used but not defined in these Directions, shall have the same meaning as assigned to them in the Act or in FEMA, 1999.

3. Eligible participants

• (i) The following persons shall be eligible to participate in credit derivatives market:
  • (a) Residents; and
  • (b) Person resident outside India, to the extent specified in these directions.

4. Directions on credit derivatives in the OTC market