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ARTICLE · 29 OCTOBER 2026

Novation In OTC Derivatives

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The Reserve Bank of India has introduced a unified novation framework for OTC derivatives, embedding nearly identical provisions across four existing Master Directions covering foreign exchange, interest rate, government securities, and credit derivatives. This analysis examines the substantive changes between draft and final rules, particularly regarding eligible remaining parties and inter-user novation restrictions, while exploring the practical compliance implications of RBI's architectural choice to in

IndiaFinance and Banking
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Novation in OTC Derivatives: RBI's Unified Rulebook

Background

Novation has existed in Indian over the counter ("OTC") derivative markets for years, but as derivative volumes and market maker turnover grew, the absence of a comprehensive framework spanning asset classes became a genuine gap. In July 2025, the Reserve Bank of India ("RBI") released a draft titled "Reserve Bank of India (Novation of OTC Derivative Contracts) Directions, 2025", seeking to close this gap through a unified set of directions. After consultation with various stakeholders, RBI finalised the framework on 22 September 2026, but abandoned the standalone Directions format. What makes this notification noteworthy is not merely its content, but its architecture: RBI chose to insert nearly identical novation provisions into four pre-existing Master Directions (defined hereinafter) governing foreign exchange derivatives, rupee interest rate derivatives, government securities forwards, and credit derivatives.

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