The Reserve Bank of India released a report in February recommending the introduction of interest rate options so that banks and corporates can hedge their interest rate risks. The report, which was drafted by a working group constituted by the central bank, said the market should start with relatively simple products such as calls, puts, caps, floors, collars and swaptions. The report also recommended allowing these products to be offered as both exchange-traded products and over-the-counter derivatives. The central bank said final guidelines will be issued by the end of March, taking into account feedback on the report.
"Currently, the only interest rate derivatives permitted in India are interest rate swap and forward rate agreement in the OTC segment and interest rate futures on the exchanges," RBI said. "These IRDs can be used by the banks and other market participants to manage market risk effectively in their books. However, the financial entities, including banks, do not have any instruments to manage the embedded options on their balance sheets."