RBI Issues New Guidelines on Margins for Derivative Contracts

The Reserve Bank of India (RBI) has announced new directives vide circular dated May 08, 202, that allows authorized dealers, i.e. AD Cat-I and AD Cat-III SPDs, to post and collect margins for permitted derivative contracts entered into with a person resident outside India. These transactions can take place both within India and abroad, and dealers are also permitted to receive and pay interest on these margins.

Derivative transactions conducted by their overseas branches and IFSC Banking Units are also covered and in case of AD CAT-I banks, posting and collecting may also be done on behalf of customers.

The central bank specified that margins posted and collected within India should be in the form of Indian currency, freely convertible foreign currency, debt securities issued by the Indian Central Government and State Governments, Certificates of Deposit, Commercial Papers, and Rupee bonds issued by Indian residents. A separate bank account has to be maintained for these purposes by AD-CAT I Banks.

These directions shall take effect immediately and will replace the A.P. (DIR Series) Circular No. 10 issued on February 15, 2021.