Published: 5 February 2026Reserve Bank of IndiaEconomy
RBI Draft Credit Derivatives Directions 2026 Released — Total Return Swaps and Credit Index Derivatives Added
On February 6, 2026, the Reserve Bank of India (RBI) announced that a regulatory framework enabling derivatives on credit indices and total return swaps on corporate bonds would be issued shortly for public feedback, as part of broader measures to deepen India's corporate bond market and expand the range of available financial instruments.
The key proposals include the introduction of Total Return Swaps (TRS) on corporate bonds and the enablement of credit index derivatives. A Total Return Swap is a financial agreement in which one party transfers the total economic performance of a reference asset (including interest income and capital gains) to a counterparty in exchange for periodic fixed or floating payments. Allowing TRS on corporate bonds is expected to improve price discovery, provide better hedging tools for institutional investors, and enhance secondary market liquidity for corporate debt.
Credit index derivatives — instruments based on a basket of credit exposures rather than a single entity — would allow investors to take diversified positions on credit risk, reducing concentration risk and broadening the participation base in India's credit markets.
The framework also includes proposals for REIT (Real Estate Investment Trust) and InvIT (Infrastructure Investment Trust) bank lending. Key provisions include capping the aggregate credit exposure of all banks to a borrowing REIT and its SPVs or holding companies at 49% of the REIT's asset value, and a requirement that the trust must have been operational for at least 3 years before a bank extends credit. These conditions are designed to protect bank balance sheets while enabling credit flow to infrastructure and real estate vehicles.
The corporate bond market in India remains underdeveloped relative to bank lending. RBI's moves are part of a broader strategy to develop India's bond market in line with its goal of becoming a USD 5 trillion economy and deepening financial markets ahead of potential global index inclusion.
Public comments on the framework are invited by RBI before finalising the regulations.
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Frequently asked questions
What are the two major new instruments proposed in RBI's draft Credit Derivatives Directions 2026?
The two major proposals are: (1) Total Return Swaps (TRS) on corporate bonds, which transfer the total economic performance of a bond to a counterparty; and (2) credit index derivatives, which allow exposure to a basket of credit risks rather than a single issuer.
What is a Total Return Swap (TRS) and why is its introduction on corporate bonds significant?
A Total Return Swap is a derivative contract in which one party transfers the full economic return of a reference asset — including interest income and capital gains — to a counterparty in exchange for periodic payments. Allowing TRS on corporate bonds can improve price discovery, enhance hedging options for institutional investors, and increase liquidity in India's corporate bond market.
What are the proposed RBI norms for bank lending to REITs and InvITs?
The draft proposes: (1) a 49% exposure cap — banks cannot lend more than 49% of their eligible exposure to a single REIT or InvIT; and (2) a minimum 3-year operational requirement — the trust must have been in operation for at least 3 years before a bank extends credit.
Why does RBI want to develop India's credit derivatives market?
India's corporate bond market is underdeveloped, accounting for only ~17% of total business finance. Deepening credit derivatives markets helps improve price discovery, provides better risk-management tools, attracts institutional participation, and supports India's long-term goal of becoming a USD 5 trillion economy with mature capital markets.
What is the difference between a credit default swap and a credit index derivative?
A credit default swap (CDS) provides protection against default by a single reference entity. A credit index derivative is linked to an index of multiple credit entities, allowing investors to gain or hedge diversified credit exposure across a basket of issuers simultaneously.
