RBI finalises rules on novation of OTC derivative contracts; instructions folded into four existing Directions and apply from 22 September 2026
RBI has finalised its instructions on novation of OTC derivative contracts, first released as a draft on 9 July 2025. Instead of a separate direction, the instructions are inserted in the four Directions governing OTC foreign exchange, rupee interest rate, government securities and credit derivatives. They apply to any novation undertaken on or after 22 September 2026.
Key facts
- Published
- 22 September 2026
- Section
- FEMA & RBI
- What it is
- Rule change
- In force
- Novations undertaken on or after 22 September 2026
- Who it affects
- Eligible market participants in OTC foreign exchange, rupee interest rate, G-sec forward and credit derivative contracts
In 30 seconds
- The circular (RBI/2026-27/263, FMRD.DIRD.No.04/14.03.066/2026-27) is dated 22 September 2026 and addressed to all eligible market participants.
- It follows the draft Reserve Bank of India (Novation of OTC Derivative Contracts) Directions, 2025, released on 9 July 2025.
- The final instructions are not a standalone direction: they are inserted in four existing Directions, issued the same day.
- They apply to any novation undertaken on or after the date of issue of the circular.
- A statement on the major feedback received is in the Annex to the circular.
हिंदी में सार
RBI ने 22 सितंबर 2026 के सर्कुलर से OTC derivative अनुबंधों के novation पर निर्देशों को अंतिम रूप दे दिया है; इसका ड्राफ़्ट 9 जुलाई 2025 को आया था। अलग निर्देश जारी करने की जगह इन्हें चार मौजूदा Directions — विदेशी मुद्रा, रुपया ब्याज दर, सरकारी प्रतिभूति forward और credit derivatives — में जोड़ा गया है। ये 22 सितंबर 2026 या उसके बाद किए गए हर novation पर लागू हैं। novation की शर्तें उन्हीं चार Directions में हैं, इस सर्कुलर में नहीं।
What RBI has announced
By a circular dated 22 September 2026 addressed to all eligible market participants, the Reserve Bank of India has said that its instructions on novation of OTC derivative contracts have been finalised.
The starting point was the draft Reserve Bank of India (Novation of OTC Derivative Contracts) Directions, 2025, issued through a press release dated 9 July 2025. RBI says the instructions have been finalised based on the feedback received, and that a statement on the major feedback is provided in the Annex.
No separate direction — four existing ones amended
With a view to consolidating circulars and instructions, RBI has not issued the novation rules as a standalone direction. The instructions have been inserted in the respective Directions that govern each class of OTC derivative, and those are being issued the same day:
| Market | Direction in which the novation instructions now sit |
|---|---|
| OTC foreign exchange derivatives | Master Direction – Risk Management and Inter-Bank Dealings dated 5 July 2016, as amended from time to time |
| Rupee interest rate derivatives | Master Direction – Reserve Bank of India (Rupee Interest Rate Derivatives) Directions, 2025 dated 8 December 2025, as amended from time to time |
| Government securities | Reserve Bank of India (Forward Contracts in Government Securities) Directions, 2025 dated 21 February 2025, as amended from time to time |
| Credit derivatives | Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2026 dated 25 June 2026, as amended from time to time |
From when
The instructions apply to any novation undertaken on or after the date of issue of the circular — that is, 22 September 2026.
Legal basis
The Directions are issued in exercise of the powers under section 45W of the Reserve Bank of India Act, 1934, read with section 45U of that Act.
What this story does not cover
The covering circular does not set out the novation conditions themselves — who may novate, the consents needed, pricing or reporting. Those are in the four amended Directions, which are separate documents. The same is true of the feedback statement in the Annex. This story is written from the covering circular alone and does not describe those conditions.
What market participants should do
- For any OTC derivative novation on or after 22 September 2026, read the novation provisions in the Direction for that product — foreign exchange, rupee interest rate, forward contracts in government securities or credit derivatives.
- Do not look for a separate “Novation Directions”; the 2025 draft has been finalised by insertion into the four Directions.
- Read the Annex to the circular to see how RBI dealt with the major feedback on the draft.
Questions and answers
Has RBI issued separate directions on novation of OTC derivatives?
No. The instructions, first proposed as a separate draft on 9 July 2025, have been finalised and inserted in four existing Directions covering OTC foreign exchange, rupee interest rate, government securities forward and credit derivative contracts.
From what date do the novation instructions apply?
To any novation undertaken on or after the date of issue of the circular, which is 22 September 2026.
Which Directions carry the novation provisions?
The Master Direction – Risk Management and Inter-Bank Dealings (5 July 2016); the Rupee Interest Rate Derivatives Directions, 2025 (8 December 2025); the Forward Contracts in Government Securities Directions, 2025 (21 February 2025); and the Credit Derivatives Directions, 2026 (25 June 2026).
Under which law are the instructions issued?
Under section 45W of the Reserve Bank of India Act, 1934, read with section 45U of that Act.
Published 22 September 2026. Updated 4 October 2026. This report is for general information and is not professional advice. Read the source document before acting on it.