Guidelines on credit default swaps for corporate bonds

Earlier this year, the Reserve Bank of India (RBI) circulated draft guidelines on credit default swaps (CDS) for corporate bonds. The draft guidelines intended to elicit public comment, were based on a report of an RBI internal group on the introduction of credit default swaps for corporate bonds. The RBI has now released the final guidelines, dated 23 May, on CDS for corporate bonds.

However, the guidelines will only come into effect from 24 October, so as to allow time for the creation of market infrastructure such as a trade repository, which is recognized as being essential for a CDS market.

Highlights

The categorization of entities into users and market-makers remain the same in the final guidelines as that in the draft guidelines. However, the eligibility norms for commercial banks acting as market-makers have been revised: minimum capital to risk asset ratio (CRAR) has been reduced to 11% (previously 12%) while core CRAR (tier 1) has been reduced to 7% (previously 8%).

Ameya Khandge is a partner at Trilegal in Mumbai where Anoop Vasu is an associate. Trilegal is a full service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad and has over 140 lawyers.