RBI to Roll Out Draft Guidelines for Corporate Bond Derivatives and TRS; FEMA Rules Reviewed

The Reserve Bank of India announced that it will release draft guidelines and a regulatory framework for derivatives on corporate bond indices and total return swaps (TRS), following the push to develop the debt market from the North Block. Presenting the Union Budget on Sunday, Nirmala Sitharaman proposed a market-making framework and announced the introduction of TRS.

“An active derivatives market can facilitate efficient management of credit risks, improve liquidity and efficiency in the corporate bond market, and facilitate the issuance of corporate bonds across the rating spectrum,” the central bank said in a statement released on developmental and regulatory policies after the Monetary Policy Committee meeting.

“A regulatory framework to enable the introduction of derivatives on credit indices and total return swaps on corporate bonds will be issued shortly for public feedback.”

The Economic Survey 2025–26 notes that a well-developed corporate bond market can help lower the cost of capital for Indian entities through competitive pricing, improved liquidity, and more efficient price discovery. The Survey estimates that as the market deepens, the corporate bond market could unlock a potential size of ₹100–120 trillion by 2030.

The Centre also announced a proposal to review the Foreign Exchange Management Act (FEMA). Both announcements in the fiscal policy were seen in light of attracting foreign capital to sustain growth momentum, as well as developing domestic financial markets.

The RBI announced that the regulatory framework under FEMA, 1999, governing the facilities for Authorised Dealers (ADs), has been “reviewed, rationalised, and refined.”

“The revised framework provides these ADs with greater flexibility with respect to foreign exchange products, risk management, and platforms. Draft directions in this regard will be issued shortly for public consultation,” the central bank said in the statement.

VRR Cap Removal to Boost Foreign Investments

Additionally, to attract foreign investments amid muted investor sentiment, the RBI also plans to remove the limit of ₹2.5 trillion applicable to investments under the Voluntary Retention Route (VRR). “Investment through the VRR in each category of securities will be subject to the investment ceiling for the respective category under the general route,” RBI Governor Sanjay Malhotra said on Friday.

The VRR was launched in 2019 to provide an additional channel for investments by foreign portfolio investors (FPIs). “With a view to ensuring predictability about the availability of investment limits under the VRR and to further increase ease of doing business, it has been decided that investments under the VRR shall now be reckoned under the limit for FPI investments under the General Route,” the statement said. Further, certain additional operational flexibilities will also be provided to FPIs investing under the VRR.