RBI issues Draft Rupee Interest Rate Derivatives Directions, 2020

September 17, 2020

Current Context: The Reserve Bank of India has released Draft Rupee Interest Rate Derivatives Directions, 2020 to allow foreign portfolio investors (FPIs) to undertake exchange-

RBI issues Draft Rupee Interest Rate Derivatives Directions, 2020

traded rupee interest rate derivatives transactions subject to an overall ceiling of Rs 5,000 crore.

  • It is released under Section 45W, RBI Act 1934.
  • The aim behind issuing Draft Rupee Interest Rate Derivatives Directions, 2020 is to motivate higher non-resident participation, enhance the role of makers of the domestic market in the offshore market, to increase the transparency and to achieve better regulation in this regards.
  • As per the draft, the FPIs can transact in allowed exchange-traded IRDs subjected to the conditions, ‘the net long position of FPIs, collectively and across all exchanges, in exchange-traded IRDs should not exceed Rs 5000 crore.’ Also, the net short position of an FPI on exchange-traded IRDs should not exceed its long position in gov. securities and in other rupee debt securities. 
  • Also, the draft states that the reason for offering rupee IRD contracts to a user is that the market maker should classify the user either as a retail user or as non- retail user. Non-retail user is the entities regulated by RBI, SEBI, IRDAI or PFRDA or resident companies having a minimum net worth of Rs 500 crore.
  • Static Part: What is Interest Rate Derivatives? : These are the contracts whose values are derived from one or more interest rates, prices of interest-rate instruments or interest rate indices.
    • HQ of RBI: Mumbai
    • Governor of RBI: Shaktikanta Das

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