SBI and Standard Chartered Execute First Credit Default Swap Trade under New RBI Rules

Current Context: The State Bank of India (SBI) and Standard Chartered Bank India carried out a Credit Default Swap (CDS) trade worth ₹25 crore on 4th April 2024.

• This marked the first such transaction after the Reserve Bank of India (RBI) issued fresh guidelines for the instrument.
• The trade involved a 1-year rupee CDS featuring REC.
• Parul Mittal Sinha, Head - Financial Markets, India, Standard Chartered Bank, stated that this landmark transaction marks a pivotal moment in credit risk management and underscores the growing sophistication of financial instruments in the Indian market.
• Credit default swaps are derivative instruments that provide a form of insurance against the risk of default of the issuer of a bond.
• This development is a significant step forward in the evolution of India’s financial markets.

Question:

Q.1 What was the significance of this Credit Default Swap (CDS) trade?
a. It was the first such transaction after RBI issued fresh guidelines for the instrument.
b. It marked the end of CDS trades in India.
c. It was the largest CDS trade in history.
d. It was the first CDS trade involving REC.