Skip to main content

Margin for Derivative Contracts

Reserve Bank of India (RBI) has issued the directions on posting and collection of margins for permitted derivative contracts between a person resident in India and a person resident outside India.

What is derivative?

Derivative means a financial contract, to be settled at a future date, whose value is derived from one or more financial, or non-financial variables.

What is margin?

A margin is a collateral that the holder of a financial instrument has to deposit to cover the risk of their counterparty.

  • Initial margin – Initial margin means the collateral that is collected to cover the potential future exposure that could arise from future changes in the market value of a derivative contract during the time it takes to close out and / or replace the position in the event of a counterparty default.
  • Variation margin – Variation margin means the collateral that is collected or paid to reflect the current mark-to-market exposure resulting from changes in the market value of a derivative contract.

To which entities are the directions on margin for derivative contracts applicable?

The directions shall apply to –

  • Authorised Dealer Category-I (AD Cat-I) banks 
  • Authorised Dealer Category – III Standalone Primary Dealers (AD Cat-III SPDs)

For the purpose of the directions, Authorised Dealers shall mean AD Cat-I banks and AD Cat-III SPDs.

Who can post and collect margin on derivative contracts?

Authorised Dealers may –

  • Post and collect margin, in India and outside India, for a permitted derivative contract entered into with a person resident outside India and receive and pay interest on such margin.
  • Post and collect margin, in India and outside India, for derivative transactions of their overseas branches and IFSC Banking Units and receive and pay interest on such margin.

Authorised Dealer Category-I banks may –

  • Post and collect margin, in India and outside India, on behalf of their customers for a permitted derivative contract entered into with a person resident outside India and receive and pay interest on such margin.

Which are permitted derivative contracts?

Permitted derivative contract means –

  • Foreign Exchange Derivative Contract 
  • Interest Rate Derivative Contract
  • Credit Derivative Contract 

In what form shall the margin be posted and collected?

Margin posted and collected in India Margin posted and collected outside India
  • Indian currency
  • Freely convertible foreign currency
  • Debt securities issued by Indian Central Government and State Governments
  • Rupee bonds issued by persons resident in India which are –
    • Listed on a recognized stock exchange in India
    • Assigned a credit rating of AAA issued by a rating agency registered with Securities and Exchange Board of India (SEBI)
  • Certificate of Deposits
  • Commercial Papers which are assigned a minimum credit rating of A1 issued by a rating agency registered with SEBI
  • Freely convertible foreign currency
  • Debt securities issued by foreign sovereigns with a credit rating of AA- and above issued by S&P Global Ratings / Fitch Ratings or Aa3 and above issued by Moody’s Investors Service

 
If different ratings are accorded by two or more credit rating agencies, then the lowest rating shall be reckoned.

What are the directions on margin requirements for Non-Centrally Cleared Derivatives (NCCDs)?

Non-Centrally Cleared Derivatives (NCCDs) mean derivative contracts whose settlement is not guaranteed by a central counterparty. Central counterparty means an entity that interposes itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer and thereby ensuring the performance of open contracts.

In case of Authorised Dealers choosing to comply with the margin requirements of a foreign jurisdiction for NCCD transactions with a person resident outside India or for NCCD transactions between two Authorised Dealers, at least one of which is a branch of a foreign bank.

  • Authorised Dealer may post and collect margin outside India, and receive and pay interest on such margin in the form and manner permitted by the laws and regulations of the foreign jurisdiction.
  • Posting and collection of margin and receipt and payment of interest on such margin may be undertaken by the Authorised Dealer or by its overseas branches or head office (including its overseas branches) as part of a global margin arrangement.

Where the account shall be maintained for posting and collecting margin?

Authorised Dealer Category-I banks shall maintain a separate interest-bearing account in Indian Rupees and / or foreign currency in the name of persons resident outside India for the purpose of posting and collecting cash margin in India, and transactions incidental thereto.


References

Reserve Bank of India. (2000, May 03). 'Foreign Exchange Management (Permissible capital account transactions) Regulations, 2000 (Amended up to February 27, 2019)'. Retrieved from https://rbi.org.in/Scripts/NotificationUser.aspx?Id=155&Mode=0

Reserve Bank of India. (2020, October 23). 'Foreign Exchange Management (Margin for Derivative Contracts) Regulations, 2020'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12097&Mode=0

Reserve Bank of India. (2021, June 04). 'Master Direction – Reserve Bank of India (Certificate of Deposit) Directions, 2021'. Retrieved from https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12108

Reserve Bank of India. (2024, May 06). 'Foreign Exchange Management (Deposit) (Fourth Amendment) Regulations, 2024'. Retrieved from https://rbi.org.in/Scripts/NotificationUser.aspx?Id=12684&Mode=0

Reserve Bank of India. (2024, May 08). 'Margin for Derivative Contracts'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12683&Mode=0

Reserve Bank of India. (2024, January 03). 'Master Direction – Reserve Bank of India (Commercial Paper and Non-Convertible Debentures of original or initial maturity upto one year) Directions, 2024'. Retrieved from https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12592

Reserve Bank of India. (2024, May 08). 'Master Direction – Reserve Bank of India (Margining for Non-Centrally Cleared OTC Derivatives) Directions, 2024'. Retrieved from https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12682


Follow at - Telegram   Instagram   LinkedIn   X   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) (Updated as on September 11, 2026)

Reserve Bank of India (RBI) has issued the directions on maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) by banks. To whom are the directions applicable? The directions are applicable to the following Regulated Entities (REs) – Commercial Banks  Small Finance Banks (SFBs) Payments Banks (PBs) Local Area Banks (LABs) Regional Rural Banks (RRBs) Primary (Urban) Co-operative Banks (UCBs) Rural Co-operative Banks – State Co-operative Banks (StCBs) District Central Co-operative Banks (DCCBs) What is CRR? Every bank shall maintain in India by way of cash reserve, a sum equivalent to such percent of its Net Demand and Time Liabilities (NDTL) in India, as the RBI in terms of Section 42(1) of the RBI Act, 1934 (for scheduled banks) and Section 18(1) of the Banking Regulation Act (BR Act), 1949 (for non-scheduled banks) [including provisions of Section 18(1) of the BR Act as applicable to co-operative banks], may specify. What is incremental CRR? In terms of Secti...
Post a Comment
Read more

Framework for Self-Regulatory Organisations in the FinTech Sector (Updated on September 10, 2026)

Reserve Bank of India (RBI) has released the framework for self-regulatory organisations in the FinTech sector. What are FinTechs? For the purpose of membership of an Self-Regulatory Organisations for FinTech Sector (SRO-FT), FinTechs may be defined as entities that provide technological solutions for delivery of financial products and services to businesses and consumers or encompass regulatory and supervisory compliance in partnership with traditional financial institutions or otherwise.  What is the need of Self-Regulatory Organisations for FinTech Sector? FinTechs play a pivotal role in redefining financial services by saving time, enhancing access, and lowering costs. While the FinTechs bring various innovations, the FinTech sector also raises concerns relating to customer protection, data privacy, cyber security, grievance handling, internal governance, financial system integrity, etc. A judicious balance between maximising the creative potential of FinTechs, while minimising...
Post a Comment
Read more

Credit Facilities to Scheduled Castes (SCs) & Scheduled Tribes (STs)

Reserve Bank of India (RBI) has issued guidelines on credit facilities to Scheduled Castes (SCs) & Scheduled Tribes (STs). What are the guidelines on credit facilities to SCs & STs? District Level Consultative Committees formed under the Lead Bank Scheme should continue to be the principal mechanism of co-ordination between banks and development agencies.  National Scheduled Tribes Finance & Development Corporation and National Scheduled Castes Finance & Development Corporation have been set up under the administrative control of Ministry of Tribal Affairs and Ministry of Social Justice & Empowerment, respectively. Banks should advise their branches / controlling offices to render all the necessary institutional support to enable these institutions to achieve the desired objectives. Loans sanctioned to State Sponsored Organisations for Scheduled Castes / Scheduled Tribes for the specific purpose of purchase and supply of inputs and / or the marketing of the out...
Post a Comment
Read more

What is Ways and Means Advances (WMA)? (Updated as on September 25, 2026)

Reserve Bank of India (RBI) has recently announced the Ways and Means Advances (WMA) limit for the Government of India. So, what is WMA? What is Ways and Means Advances (WMA)? Ways and Means Advances (WMA) is a collateral free clean advance availed by the Central and State Governments from RBI, to tide over temporary mismatches in the receipts and payments. Section 17(5) of the Reserve Bank of India Act, 1934 empowers RBI to grant WMA to Central and State Governments, as and when required by them. What is Special WMA / Special Drawing Facility (SDF)? In addition to WMA, State Governments are also eligible for a Special Drawing Facility (SDF), which is granted against collateral of Government Securities held by the State Governments.  SDF availed by State Governments / UTs is linked to the quantum of their investments in marketable securities issued by the Government of India, including Auction Treasury Bills (ATBs).  (Updated as on June 28, 2024) Based on the recommendations m...
Post a Comment
Read more

Credit Derivatives (Updated as on September 22, 2026)

Reserve Bank of India (RBI) has issued directions on credit derivatives. What is Credit Derivative? Credit derivative means a derivative contract whose value is derived from the credit risk of an underlying debt instrument or an index of underlying debt instruments. What is Credit Default Swap (CDS) and Total Return Swap (TRS)? Credit Default Swap (CDS) means a credit derivative contract in which one counterparty (protection seller) commits to pay to the other counterparty (protection buyer) in the case of a credit event with respect to a reference entity and in return, the protection buyer makes periodic payments (premium) to the protection seller until the maturity of the contract or the credit event, whichever is earlier. Total Return Swap (TRS) means a credit derivative contract under which one counterparty (total return payer) commits to transfer the entire economic performance of a reference asset to the other counterparty (total return receiver), and, in return, receives a pre-d...
Post a Comment
Read more