RBI Finalises OTC Derivatives Novation Framework

RBI Finalises OTC Derivatives Novation Guidelines

The Reserve Bank of India has published the final Reserve Bank of India (Novation of OTC Derivative Contracts) Directions, 2026, based on feedback received on the draft issued in July 2025. The framework establishes clear procedures for the legal transfer (novation) of OTC derivative contracts between counterparties, particularly in central clearing and risk mitigation contexts.

The directions define eligible market participants, specify documentation standards, and outline confirmation and settlement protocols. They also set conditions under which novation preserves the economic and legal integrity of the original contract, including credit risk transfer and netting enforceability.

This development is critical for banks, financial institutions, and market participants engaged in derivatives trading. Legal teams must ensure adherence to the novation mechanics, particularly in light of international standards such as ISDA definitions. The framework enhances regulatory clarity and supports the stability of India’s financial markets.