RBI Allows Non-Residents To Participate In Rupee Interest Rate Derivatives Market
The Reserve Bank of India has allowed non-residents to participate in the rupee interest rate derivatives segment in an attempt to deepen the rupee interest rate swap market.
The non-residents can undertake rupee interest rate derivative transactions on recognised stock exchanges, electronic trading platforms and over the counter markets. “These directions shall come into force with immediate effect,” the central bank said in a notification.
A non-resident will be allowed to undertake transactions in the rupee interest rate derivatives markets to hedge an exposure to rupee interest rate risk and other specified purposes, RBI said.
It further said foreign portfolio investors, collectively, can transact in interest rate futures up to a limit of net long position of Rs 5,000 crore.
The RBI, in its first bi-monthly policy for 2018-19 in April, had announced to provide access to non-residents into the interest rate swap market with a view to increase participation in the domestic market.
There is an active market for rupee interest rate swap offshore, and the exercise is aimed at increasing participation of non-residents in the domestic market, it had said in April.
It had also observed that while the rupee interest rate swap market was most liquid among the interest rate derivatives market, it lacked depth to enable large banks to manage risks.
Also, Indian market has witnessed increasing participation from non-resident players like FPIs in debt, the regulator had said.
An interest rate swap is a financial contract between two parties exchanging or swapping a stream of interest payments for a notional principal amount on regular occasions during a specified period.