What changed
RBI amended its Interest Rate Futures Directions to include 91-day Treasury Bills as an eligible underlying for futures contracts. Previously, only 10-year notional coupon-bearing government securities were permitted. The new 91-day T-Bill futures will be cash-settled, with the final settlement price based on the weighted average yield from the weekly T-Bill auction.
What it means for you
UCBs now have a short-term interest rate hedging instrument, complementing the existing long-term IRF. This allows better management of interest rate risk on shorter-duration assets and liabilities. Cash settlement simplifies the process compared to physical delivery required for 10-year IRFs.
What you must do
- Update your risk management policy to include 91-day T-Bill futures as a permitted hedging instrument.
- Ensure treasury and dealing staff are trained on the features and settlement mechanism of the new contract.
- Review and update internal exposure limits and reporting frameworks to accommodate the new product.
- Coordinate with depositories and exchanges to confirm operational readiness for trading and settlement.
Who it affects
Primary (Urban) Cooperative Banks, Treasury departments of UCBs, Risk management teams at UCBs, Compliance officers at UCBs
What is the settlement method for 91-day T-Bill futures?
The contract is cash-settled in Indian Rupees, with the final settlement price derived from the weighted average price/yield of the weekly 91-day T-Bill auction on the expiry date.
Can UCBs still trade 10-year IRFs?
Yes, the existing 10-year notional coupon-bearing government security IRFs remain available. The amendment adds 91-day T-Bill futures as an additional product.
Which regulatory framework governs these futures?
The Interest Rate Futures (Reserve Bank) (Amendment) Directions, 2011, issued under Section 45W of the RBI Act, 1934, along with SEBI guidelines for exchange-traded derivatives.