RBI Consolidates Rules for Rupee Interest Rate Derivatives 

New Master Direction Effective March 1, 2026

The Reserve Bank of India just released the Master Direction – Reserve Bank of India (Rupee Interest Rate Derivatives) Directions, 2025, a move that sweeps up and simplifies a patchwork of older rules for rupee interest rate derivatives (IRDs). Starting March 1, 2026, this single set of rules replaces a bunch of earlier circulars and instructions. It’s a big shift, regulatory clutter gets cleared, and the market finally gets a unified framework.

The RBI wants this Master Direction to do two things at once: give the IRD market room to develop and innovate, but keep strong checks around risk, transparency, and oversight. It’s principle-based, comprehensive, and designed to keep pace with a fast-changing market.

One Rulebook, Fewer Gaps

Now, all rupee IRD transactions, whether traded over the counter (OTC), on stock exchanges, or through electronic platforms, fall under this one framework. That’s a major improvement. For years, fragmentation between OTC and exchange-traded products made things confusing. With this move, RBI finally closes that gap.

Not everything gets folded in, though. Some products, like forward contracts in government securities, will still follow their own RBI rules. Where the market needs special rules, RBI keeps them.

Who can participate and how?

The Directions spell out exactly who can participate in the IRD market and to what extent. Residents get broad access, as long as they follow prudential guidelines. Non-residents can also join, but under tighter controls meant to prevent systemic risk and speculation.

The RBI ties non-resident participation to India’s capital account and overall risk strategy. Non-residents can hedge and, in limited cases, take non-hedging positions, but only up to certain limits, and with strict reporting.

Standardisation for Exchange-Traded IRDs

When it comes to exchange-traded IRDs, the Master Direction doubles down on product approval and oversight. Stock exchanges can’t launch new IRD products without RBI’s green light, and any changes to existing products need approval too. Every floating-rate benchmark must come from an RBI-authorised Financial Benchmark Administrator, which is all about keeping benchmarks reliable.

Non-residents can use exchange-traded IRDs strictly for hedging. Foreign Portfolio Investors can trade interest rate futures, but only within position and exposure limits set by the RBI, keeping risk in check.

OTC Market: Clearer Roles for Market-Makers and Users

A standout change is how the Directions clarify the OTC market. The RBI now spells out which entities can act as market-makers: scheduled commercial banks, standalone primary dealers, certain NBFCs, and other notified financial institutions.

Participants are also now classified as retail or non-retail, based on factors like net worth, turnover, regulatory status, and risk management capacity. This matters, retail users get access to simpler products, while non-retail users can handle more complex derivatives. The RBI wants to match product complexity to user sophistication.

What’s Allowed: Simplifying the Product Menu

The Directions streamline which IRD products are on offer. Retail users get access to basic instruments: forward rate agreements, plain-vanilla interest rate swaps, and a few option structures with restrictions. Non-retail users can use more advanced stuff, swaptions and other non-leveraged derivatives.

But RBI draws a firm line: nobody gets to use leveraged derivative structures. The RBI still sees these as too risky for the market.

The Master Direction brings much stricter supervision from both a quantitative and exposure-management angle. It sets clear participation thresholds, spells out who can access which products, and centralizes exposure monitoring. Now, non-resident entities that aren’t hedging face a hard ceiling: their total PVBP exposure in IRD transactions can’t go over ₹1,000 crore. CCIL, as the official trade repository, tracks these positions, which gives regulators almost real-time insight into systemic interest rate risk.

FPIs still run into tight limits on exchange-traded activity, the rules cap aggregate positions and set concentration norms. Meanwhile, all OTC trades must be reported on schedule, with monthly cross-border remittance details uploaded to the RBI’s Centralised Information Management System (CIMS). The framework goes further by segmenting users: what you can trade depends on transparent financial metrics like net worth, turnover, and your regulatory status. These aren’t just guidelines; they act as hard filters on market access.

The Master Direction is clear about the difference between hedging and non-hedging deals. Hedging is broadly allowed. That’s tightly controlled, mostly limited to non-resident, non-individual entities.

Put together, these rules point to a more data-driven approach. The RBI wants to keep leverage in check, improve price discovery, and get a sharper view of how exposures connect across banks, NBFCs, FPIs, and offshore arms. All this gears up for the big shift set for March 1, 2026.

Enhanced Reporting and Compliance Expectations

The new framework puts transparency and oversight front and center. Now, every OTC IRD trade must get reported to CCIL’s Trade Repository within a set timeframe. Offshore IRD deals done by related entities of Indian market-makers also fall under this reporting net, giving the RBI a much clearer view of cross-border exposures than before.

Participants face stricter rules too. They need to meet all the prudential norms, capital requirements, exposure limits, and KYC/AML checks, sticking to the accounting standards regulators or professional bodies set out.

The RBI isn’t taking a hands-off approach. It has broad authority, asking for any information it needs, publishing anonymized market data, and stepping in with restrictions or even suspensions when firms don’t comply.

This Master Direction covers every rupee interest rate derivative trade struck on or after March 1, 2026. If you have older contracts, those stay under the previous rules until they mature or end. That gives market participants time to adjust without disruption.

Conclusion

The RBI’s Master Direction on Rupee Interest Rate Derivatives marks a real shift in regulation. By tightening reporting, clarifying who can do what, and linking product access more closely to risk, the RBI aims to build a deeper, more transparent, and resilient IRD market in India. The approach balances growth with stability.

Banks, NBFCs, FPIs, and corporates with active treasury teams need to take a hard look at how these changes will affect their hedging, controls, documentation, and compliance. The 2026 deadline sounds far off, but smart players won’t wait to get ready.