RBI Clarifies Bank Participation in Exchange Traded Interest Rate Futures
Current · Source: Reserve Bank of India · RBI/2013-14/410 · issued 19 Dec 2013 · ~1 min read
Quick answerRBI confirms commercial banks and standalone primary dealers can trade IRFs for hedging and trading, but not for clients. The December 2013 IRF directions supersede the 2009 directions; this clarification aligns participation with 2008 and 2009 circulars.
The rule, in the simplest words
Banks can trade Interest Rate Futures (IRFs, which are contracts to bet on future interest rates) for their own hedging (protecting against losses) or trading (making profit), but NOT for clients (customers).
Standalone primary dealers (special firms that buy and sell government bonds) can also use IRFs for their own hedging or trading, but NOT for clients.
The rules from 2008 and 2009 still apply, and the new 2013 rules replace the old 2009 rules.
Client transactions in IRFs are completely banned for both banks and primary dealers.
How it plays out — a real example
A treasury officer in Indore, Priya, wants to help a big corporate client lock in a low interest rate for a future loan using IRFs. She remembers the RBI rule: banks cannot do IRF trades for clients. So she tells the client, 'Sorry, I can't do that for you, but our treasury team can use IRFs to protect the bank's own bond portfolio from rate swings.'
What changed
RBI issued a clarification on December 19, 2013, that banks' participation in exchange-traded Interest Rate Futures (IRF) must follow guidelines from October 13, 2008 and August 28, 2009. Banks can use IRFs for hedging and trading, but client transactions remain prohibited. Standalone primary dealers face similar restrictions.
What it means for you
Banks and primary dealers have clear permission to use IRFs for managing interest rate risk on their own books and for proprietary trading. However, they cannot offer IRF trading services to clients, limiting revenue from this product. This aligns with RBI's cautious approach to derivative markets.
What you must do
Review your bank's IRF trading policies to ensure compliance with the 2008 and 2009 circulars referenced.
Confirm that IRF transactions are limited to hedging and proprietary trading, not client accounts.
Update internal training materials to reflect that client IRF transactions are not permitted.
Coordinate with your treasury and risk teams to align IRF activities with these guidelines.
Who it affects
All commercial banks (excluding RRBs and LABs), Standalone primary dealers
❓ Common questions
Can banks trade IRFs for clients under this circular?
No, banks are explicitly prohibited from undertaking IRF transactions on behalf of clients. Only hedging and proprietary trading are allowed.
Does this circular replace earlier IRF guidelines?
It clarifies that the December 2013 IRF directions supersede the 2009 directions, but banks must still follow the 2008 and 2009 circulars for participation rules.
📜 Read the original circular — full text as issued by RBI
RBI/2013-14/410
IDMD.PCD.09/14.03.01/2013-14
December 19, 2013
The Chairmen/Chief Executive Officers
All Commercial Banks (excluding RRBs and LABs) and
Stand Alone Primary Dealers
Dear Sir/Madam,
Participation in Exchange Traded Interest Rate Futures
Directions on cash settled Interest Rate Futures (IRF) on 10-year Government of India security were issued vide notification IDMD.PCD.07/ED (RG) - 2013 dated December 5, 2013 . These directions were issued superceding the Interest Rate Futures (Reserve Bank) Directions, 2009 dated August 28, 2009 (as amended till December 30, 2011).
2. In the context of the Interest Rate Futures (Reserve Bank) Directions, 2013 dated December 5, 2013 issued by the Reserve Bank of India, it is clarified that the participation of commercial banks in IRF would be subject to the guidelines issued vide circular DBOD.BP.BC.56/21.04.157/2008-09 dated October 13, 2008 and updated vide circular DBOD.BP.BC 34/21.04.157/2009-10 dated August 28, 2009 i.e. banks are permitted to participate in IRF both for the purpose of hedging the risk in the underlying investment portfolio and also to take trading position. However, banks are not allowed to undertake transactions in IRFs on behalf of clients. Similarly, stand-alone Primary Dealers are allowed to deal in IRF for both hedging and trading on own account and not on client’s account as prescribed in paragraph 3 of the guidelines issued vide circular IDMD. PDRD. No.1056 / 03.64.00/2009-10 September 1, 2009 .
Yours faithfully,
(K.K. Vohra)
Principal Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2013-14/410 · issued 19 Dec 2013. The plain-English explanation above is BankPulse’s own independent summary.
Example: if you are a Compliance officer at a bank this circular applies to (All commercial banks (excluding RRBs and LABs), Standalone primary dealers), your first concrete step on “RBI Clarifies Bank Participation in Exchange Traded Interest Rate Futures” is: “Review your bank's IRF trading policies to ensure compliance with the 2008 and 2009 circulars referenced.” (RBI issued this 19 Dec 2013).
Circular: RBI/2013-14/410 -- RBI Clarifies Bank Participation in Exchange Traded Interest Rate Futures
Issued: 19 Dec 2013
Action required: Review your bank's IRF trading policies to ensure compliance with the 2008 and 2009 circulars referenced.
Action required: Confirm that IRF transactions are limited to hedging and proprietary trading, not client accounts.
Action required: Update internal training materials to reflect that client IRF transactions are not permitted.
Action required: Coordinate with your treasury and risk teams to align IRF activities with these guidelines.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=8636&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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