Total Return Swaps to be Introduced by RBI to Deepen Corporate Bond Market

The Reserve Bank of India (RBI) is introducing new financial instruments to enhance liquidity and accessibility in the corporate bond market.  

The central bank proposes a regulatory framework for derivatives on corporate bond indices and Total Return Swaps (TRS), announced on February 6, 2026. 

New Financial Instruments for Bond Market 

Total return swaps are derivatives in which one party receives a bond's full return (interest plus price changes) in exchange for paying a floating rate, providing synthetic exposure without ownership.  

Credit index derivatives allow investors to take positions on groups of bonds rather than single companies. These instruments aim to improve liquidity and efficiency in the corporate bond market. 

Regulatory Framework and Market Impact 

The RBI will release a draft framework soon for public feedback before finalising rules. The introduction of these instruments follows an announcement in the Union Budget presented on February 1, 2026.  

The proposal aims to enhance the corporate bond market and gradually decrease the economy's dependence on bank lending by making it easier for companies with different credit ratings to raise money through bonds. 

Read More: India’s 10 Year Bond Yields Touch 1-Year High After Record FY27 Borrowing! 

Conclusion 

The RBI's introduction of total return swaps and credit index derivatives represents a significant development for India's corporate bond market. These instruments are designed to improve liquidity, facilitate efficient management of credit risks, and broaden access to bond market participants across different credit ratings. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities or companies mentioned are only examples and not recommendations. This does not constitute a personal recommendation or investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

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