RBI, IRDAI Unwilling to Open Banks and Insurers to Invest in Commodity Derivatives: SEBI Chief

The Reserve Bank of India (RBI) and Insurance Regulatory and Development Authority of India (IRDAI) are not in favour of allowing banks and insurance companies to invest in commodity derivatives, Tuhin Kanta Pandey, Chairman of the SEBI, said on 4 May. 

He said both regulators have their own reasons and are not comfortable with such participation at present. Discussions between the regulators did not lead to any change in stance. 

Investment Fit Remains a Concern 

The hesitation is linked to the nature of these institutions. Insurance companies manage long-term funds, while commodity derivatives are typically shorter-term instruments with price volatility. 

According to Pandey, regulators do not see a clear role for such products within existing investment frameworks. The proposal is not being taken forward for now. 

Earlier Plans to Broaden Access 

SEBI had previously indicated that it would engage with the government to allow banks and pension funds into commodity derivatives. The plan was to deepen participation in the market. 

Pandey said the pension fund regulator has reviewed the matter, but no decision has been made public. 

Tax and Operational Issues 

The regulator has also highlighted difficulties linked to taxation in commodity trading. Physical delivery across states requires multiple registrations under the current Goods and Services Tax system.  

SEBI has proposed an Integrated GST structure to simplify compliance. This could reduce procedural requirements tied to warehousing and delivery. 

AI-Linked Risks Under Review 

Separately, SEBI is working on an advisory related to risks from artificial intelligence tools, including models such as Mythos.  

Pandey said such systems can identify and act on weaknesses quickly. The regulator has been in touch with market participants on these issues. 

Read More: NSE EGM on May 25: Proposes to Overhaul Governance and Lift NRI Investment Cap! 

Market Reaction to Comments 

Shares of Multi Commodity Exchange of India (MCX) declined following the statement. The stock fell as much as 3.5% during the day and was down about 1.5% at ₹2,925.8 in afternoon trade. 

Conclusion 

The current position reflects caution from financial regulators, with broader market access and structural issues still under consideration. 

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