Summary: The Reserve Bank of India (RBI), through RBI/2026-27/263 and FMRD.DIRD.No.04/14.03.066/2026-27 dated September 22, 2026, has finalised instructions relating to novation of over-the-counter (OTC) derivative contracts. The final instructions follow the draft Reserve Bank of India (Novation of OTC Derivative Contracts) Directions, 2025, which was issued for feedback through a press release dated July 09, 2025. Based on feedback received, RBI has incorporated the novation requirements into the respective Directions governing OTC foreign exchange, rupee interest rate, government securities and credit derivative contracts. The affected regulatory frameworks are the Master Direction – Risk Management and Inter-Bank Dealings dated July 05, 2016; Master Direction – Reserve Bank of India (Rupee Interest Rate Derivatives) Directions, 2025; Reserve Bank of India (Forward Contracts in Government Securities) Directions, 2025; and Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2026. The instructions apply to any novation undertaken on or after the date of issue of the circular. RBI has issued these Directions under section 45W of the Reserve Bank of India Act, 1934, read with section 45U of the Act and other enabling powers.
Reserve Bank of India
RBI/2026-27/263FMRD.DIRD.No.04/14.03.066/2026-27 | Dated: September 22, 2026
To
All Eligible Market Participants
Madam / Sir,
Novation of OTC Derivative Contracts
Please refer to the draft Reserve Bank of India (Novation of OTC Derivative Contracts) Directions, 2025, issued vide press release dated July 09, 2025.
2. Based on the feedback received, the instructions related to the OTC derivative contracts have been finalised. Statement on the major feedback received is provided in the Annex.
3. With a view to consolidate circulars/instructions, the instructions have been inserted in the respective Directions governing OTC foreign exchange, interest rate, government securities and credit derivative contracts, as follows, and are being issued today.
a. Master Direction – Risk Management and Inter-Bank Dealings dated July 05, 2016, as amended from time to time.
b. Master Direction – Reserve Bank of India (Rupee Interest Rate Derivatives) Directions, 2025 dated December 08, 2025, as amended from time to time.
c. Reserve Bank of India (Forward Contracts in Government Securities) Directions, 2025 dated February 21, 2025, as amended from time to time.
d. Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2026 dated June 25, 2026, as amended from time to time.
4. The instructions shall be applicable to any novation undertaken on or after the date of issue of this circular.
5. These Directions have been issued by the Reserve Bank in exercise of the powers conferred under section 45W of the Reserve Bank of India Act, 1934, read with section 45U of the Act and of all the powers enabling it in this behalf.
Yours faithfully
(Dimple Bhandia)Chief General Manager
Annex.
Statement on the major feedback received for draft Direction
Subject: Novation of OTC Derivative Contracts
Section 1: Short title, commencement and applicability of Directions
(a) Para 1(ii): These Directions shall apply to Over-the-Counter (OTC) derivatives contracts undertaken in terms of the provisions of the Governing Directions.
Feedback: Sought clarification on whether (i) the Directions shall be applicable on existing outstanding OTC derivative contracts; and (ii) the existing novation agreements concluded before issuance of these Directions needs to be re-executed as per standard agreement prescribed by FIMMDA / FEDAI.
RBI Comments:
Accepted. It has been clarified that the instructions shall be applicable to novation of OTC derivative contracts undertaken on or after the date of issue of the revised Directions. This will be applicable both to novation of OTC derivative contracts outstanding on the date of issue of the Directions and to novation of OTC derivative contracts entered into after the date of issue of the Directions.
(b) Proviso to para 1(ii): The Directions shall not apply to a novation of an OTC derivative contract undertaken (i) by a central counterparty (CCP) for the purpose of effecting settlement of an OTC derivative contract; or (ii) pursuant to a scheme of merger/demerger/amalgamation, approved or confirmed by the competent authority under the provisions of the Companies Act, 2013 or any other manner under any law.
Feedback: Sought clarification on (i) whether any subsequent novation, post novation of an OTC derivative contract by the CCP for the purpose of settlement, shall be covered under these Directions or not; (ii) if these Directions are not applicable to the novation agreement carried owing to merger/demerger/amalgamation, then which guidelines shall be followed in such novation agreements.
RBI Comments:
(i) Accepted. The instructions on novation of OTC derivative contracts shall not apply to the novation undertaken by a CCP for the purpose of settlement. Any subsequent novation of an OTC derivative contract accepted for settlement by the CCP shall be undertaken in terms of these instructions. The definition of the remaining party in the respective Directions has been expanded to include the CCP.
(ii) Accepted. Novation of an OTC derivative transaction pursuant to scheme of merger/demerger/amalgamation shall continue to be undertaken in terms of circular on ‘Novation of OTC Derivative Contracts’ dated December 09, 2013. This has been specified in the definition of novation in the respective Directions.
Section 2: Definition
(a) Para 2(i)(e): ‘Market-maker’ shall have the same meaning as assigned to it in Paragraph 2.1(xviii) of the Master Direction – Reserve Bank of India (Market-makers in OTC Derivatives) Directions, 2021 dated September 16, 2021, as amended from time to time.
Feedback: Suggested that the definition of market maker may be linked to respective Governing Directions for an OTC derivative contract.
RBI Comments: Accepted. The instructions for undertaking novation of OTC derivative contract have been incorporated in the respective governing Directions.
(b) Para 2(i)(f): ‘Novation’ means the replacement of a market maker with another market maker in an OTC derivative contract between two counterparties (transferor, who steps out of the existing deal, and remaining party) to an OTC derivative transaction with a new contract between remaining party and a third party (transferee).
Feedback: Requested to permit novation of an OTC derivative transaction, where transferor is a user, and the transferee is a central treasury/group entity of the transferor.
RBI Comments: Not accepted. One of the parties to an OTC derivative transaction shall be a market maker or a central counterparty authorised by the Reserve Bank for the purpose. Accordingly, novation of an OTC derivative transactions wherein both the transferor and the transferee are users has not been permitted.
(c) Para 2(i)(h): ‘Remaining Party’ in novation means the user that continues to be a counterparty in the new contract post novation.
Feedback: Sought clarity on whether i) a market maker can be a remaining party; ii) a central counter party can be remaining party for transactions on anonymous platform or for transactions accepted for clearing and settlement by the CCP.
RBI Comments: Accepted. The definition of ‘remaining party’ has been revised to indicate that a market maker or a central counterparty can be a remaining party.
Section 3: Guidelines and mechanism for undertaking novation
(a) Para 3(i)(a): The novation of an OTC derivative contract shall be done with the prior consent of the remaining party.
Feedback: Sought clarification on whether the consent of CCP will be required for novation of an OTC derivative contract undertaken on anonymous platform (like ASTROID) wherein members face CCP as counterparty, or not.
RBI Comments: Accepted. The definition of ‘remaining party’ has been modified to indicate that a CCP can also be a remaining party. Where the CCP is a remaining party, the novation of an OTC derivative contract shall be undertaken in accordance with the procedure specified by the CCP.
(b) Para 3(i)(b): The amount corresponding to the mark-to-market value of the OTC derivative contract at the prevailing market rate on novation date shall be exchanged between the transferor and the transferee.
Feedback: Sought clarification on whether the amount corresponding to the mark-to-market value of the OTC derivative contract be exchanged upfront or on deferred basis till maturity.
RBI Comments: Accepted. It has been clarified that the amount corresponding to the mark-to-market of the OTC derivative shall be exchanged upfront between the transferor and transferee.
