RBI's own words: “These Directions shall come into force with immediate effect and shall supersede the A. P. (DIR Series) Circular No. 10 dated February 15, 2021” — RBI/2024-25/34
Source: Reserve Bank of India · RBI/2020-21/98 · issued 15 Feb 2021 · ~2 min read
Quick answerRBI now permits AD Cat-I banks to post and collect margin for permitted derivative contracts with non-residents, using INR, freely convertible foreign currency, Indian government securities, or AAA-rated rupee bonds. Margin can also be posted outside India in foreign currency or high-rated sovereign debt.
The rule, in the simplest words
Banks can now give or take margin (a security deposit) for cross-border deals using Indian rupees, foreign money, Indian government bonds, or AAA-rated rupee bonds (bonds with the highest safety rating).
For margin kept outside India, banks can use foreign money or foreign government bonds rated AA- or above (very safe).
If a bond has different ratings from different agencies, banks must use the lowest rating (safest rule).
Banks can pay or receive interest on the margin (extra money earned on the deposit).
Banks must keep a separate account for cash margin from people living outside India.
How it plays out — a real example
A forex & trade-finance officer in Mumbai is setting up a derivative contract with a foreign bank. She collects margin from the non-resident client using AAA-rated Indian corporate bonds, which is now allowed. She also opens a separate cash margin account for the client, ensuring compliance with the new RBI rules.
What changed
RBI issued directions under FEMA to allow posting and collection of margin for permitted derivative contracts between residents and non-residents. AD Cat-I banks can now use Indian currency, freely convertible foreign currency, Indian government debt securities, or AAA-rated rupee bonds for margin in India. Outside India, margin can be in freely convertible foreign currency or foreign sovereign debt rated AA- or above.
What it means for you
This circular expands the collateral options for cross-border derivative transactions, reducing reliance on cash-only margins. Banks can now accept a wider range of high-quality assets, potentially lowering counterparty risk and transaction costs. It also clarifies that interest can be paid on margin, making these contracts more attractive for hedging and investment.
Historical instruction — do not use for current compliance. This is what was required at the time; it no longer reflects current RBI requirements. If no replacement rule is linked above, that only means none is recorded on our register yet — it does not prove no later applicable rule exists. Confirm on the official RBI source below.
What banks were required to do at the time
Update internal policies to accept the specified margin types for permitted derivative contracts with non-residents.
Set up separate accounts for cash margin in India for non-resident counterparties as required.
Ensure compliance with the lowest credit rating rule when multiple ratings exist for debt securities.
Train staff on the new margin eligibility criteria and documentation requirements.
Who it affects
Authorised Dealer Category-I banks, Indian residents entering derivative contracts with non-residents, Non-resident counterparties of permitted derivative contracts
Built from our lineage records — each fact carries its provenance; missing history simply is not shown (never guessed).
What types of margin can be posted in India under this circular?
Margin can be posted in Indian currency, freely convertible foreign currency, debt securities issued by Indian central or state governments, or rupee bonds listed on a recognized Indian stock exchange with a AAA rating from a SEBI-registered agency.
Can margin be posted outside India?
Yes, AD Cat-I banks can post or collect margin outside India in freely convertible foreign currency or debt securities issued by foreign sovereigns with a credit rating of AA- or above from S&P/Fitch, or Aa3 or above from Moody's.
What happens if a debt security has different ratings from multiple agencies?
The lowest rating among the agencies must be used for determining eligibility.
📜 This document’s life story (1 recorded event, each backed by RBI’s own words)
RBI’s words: “These Directions shall come into force with immediate effect and shall supersede the A. P. (DIR Series) Circular No. 10 dated February 15, 2021”
📜 Read the original circular — full text as issued by RBI
RBI/2020-21/98
A. P. (DIR Series) Circular No. 10
February 15, 2021
All Authorised Dealer Category-I Banks
Madam/Sir,
Margin for Derivative Contracts
Attention of Authorised Dealer Category-I (AD Cat-I) banks is invited to the Foreign Exchange Management (Margin for Derivative Contracts) Regulations, 2020 notified in the Gazette of India vide notification no. FEMA.399/RB-2020 dated October 23, 2020 ( Annex I ). Accordingly, directions are being issued to allow posting and collection of margin for permitted derivative contracts between a person resident in India and a person resident outside India.
2. AD Cat-I banks may post and collect margin in India, on their own account or on behalf of their customers, for a permitted derivative contract entered into with a person resident outside India in the form of:
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; and
Assigned a credit rating of AAA issued by a rating agency registered with the Securities and Exchange Board of India. If different ratings are accorded by two or more credit rating agencies, then the lowest rating shall be reckoned.
Explanation: Permitted derivative contract shall have the same meaning as assigned to it in the Foreign Exchange Management (Margin for Derivative Contracts) Regulations, 2020 [Notification no. FEMA.399/RB-2020 dated October 23, 2020].
3. AD Cat-I banks may post and collect such margin outside India in the form of:
Freely convertible foreign currency; and
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.
4. AD Cat-I banks may receive and pay interest on margin posted and collected on their own account or on behalf of their customers for a permitted derivative contract entered into with a person resident outside India.
5. AD Cat-I banks shall maintain a separate account in the name of persons resident outside India for the purpose of posting and collecting cash margin in India, and transactions incidental thereto.
6. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.
Yours faithfully,
(Dimple Bhandia)
Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2020-21/98 · issued 15 Feb 2021. The plain-English explanation above is BankPulse’s own independent summary.
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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=12028&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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