The RBI is set to establish a regulatory framework to introduce derivatives on credit indices and total return swaps on corporate bonds, aiming to enhance the corporate bond market. Governor Sanjay Malhotra highlighted that a robust derivatives market could aid in credit risk management, boost market liquidity, efficiency, and issuance of corporate bonds. The recent Union Budget announcement on total return swaps and derivatives on corporate bond indices paved the way for this initiative.
The regulatory framework, to be released soon for public feedback, will enable the introduction of derivatives on credit indices and total return swaps on corporate bonds. Additionally, the RBI plans to offer increased flexibility to Authorised Dealers concerning foreign exchange products, risk management, and platforms, with a revised framework under public consultation.
Furthermore, the RBI disclosed that investments under the Voluntary Retention Route (VRR) will now be considered within the FPI investment limit under the General Route. This move aims to provide additional operational flexibilities to Foreign Portfolio Investors (FPIs) utilizing the VRR for investments in the Indian debt markets. The VRR, initiated in March 2019, has been continually refined to enhance operational ease and attract more FPI investments.
Active participation by FPIs in the VRR has been notable, with over 80% of the current investment limit of Rs 2.5 lakh crore already utilized, indicating a positive response to the initiative.
