Decoding The Liberalized FX OTC Derivatives Framework In India

To regulate the over-the-counter ("OTC") foreign exchange ("FX") derivatives market in India, the Reserve Bank of India ("RBI") issues interalia a Master Direction on Risk Management and Inter-Bank Dealings ("Derivatives Directions"). The purpose of the Derivatives Directions is to consolidate and periodically update the regulations governing the conduct of Market Makers ("MM") (usually banks) who offer foreign exchange derivative ("FXD") products to users (usually corporates, financial institutions and non-residents). The Derivatives Directions was last amended on May 3, 2024. From the changes introduced in the last few years, it is evident that the RBI aims to liberalise use of derivative contracts by providing more flexibility to users, ease of access to FXD for users with small exposures and enhance the operational efficiency of the FX derivatives market in general in India. This article contains analysis of how far RBI has liberalised the OTC FX derivatives