What changed
RBI issued a circular allowing NBFCs to participate in Interest Rate Futures (IRFs) on recognized exchanges as clients, solely for hedging purposes. This follows the broader IRF framework introduced via Notification No. FMD. 1 /ED(VKS) - 2009 dated August 28, 2009. NBFCs must now submit half-yearly data on IRF transactions to the regional DNBS office.
What it means for you
NBFCs can now use IRFs to hedge interest rate risk on their underlying exposures, aligning with SEBI and RBI guidelines. This provides a risk management tool previously unavailable to them. Banks lending to or transacting with NBFCs should note that their counterparties may now have better hedged balance sheets, potentially reducing credit risk. Compliance teams must ensure timely half-yearly reporting to avoid regulatory gaps.
What you must do
- Review your NBFC's eligibility to trade IRFs as a client on SEBI-recognized exchanges.
- Set up internal processes to capture IRF transaction data (number of transactions, notional principal, short/long positions) for half-yearly reporting.
- Submit the prescribed format to the regional DNBS office within one month of each half-year end.
- Ensure IRF trading is strictly for hedging underlying exposures, not speculation.
Who it affects
All NBFCs (excluding RNBCs), Regional offices of Department of Non-Banking Supervision (DNBS), SEBI-recognized exchanges offering Interest Rate Futures
Can NBFCs use Interest Rate Futures for speculation?
No, the circular explicitly permits IRF participation only for hedging underlying exposures. Speculative trading is not allowed.
What data must NBFCs report half-yearly?
NBFCs must report the number of IRF transactions, notional principal amount in rupees, and break them into short and long positions using the format provided in the circular.
Where should the half-yearly report be submitted?
The report must be sent to the Regional office of the Department of Non-Banking Supervision (DNBS) under whose jurisdiction the NBFC is registered, within one month of the half-year end.