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PG Apte Report: Introduction of Interest Rate Options in India

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In a bid to safeguard interest risk rates and to help lenders in managing their asset liability mismatch, Reserve Bank of India released the Report of the Working Group on Introduction of Interest Rate Options in India.

  • The working was headed by PG Apte which reconnoitered the financial entities regarding their embedded options on balance sheets.
  • Interest rate options (IROs) give buyers the right but not the obligation, to pay or receive a predetermined interest rate over an agreed period.

PG Apte Report Introduction of Interest Rate Options in IndiaThe key recommendations of the Group are:

  • Simple call and put options to be permitted.
  • Complex structures may be introduced subsequently.
  • Interest rate options permitted on the currency and derivatives segment of stock exchanges as well as in the OTC (over the counter)
  • Banks, primary dealers and other regulated entities having sound financials and prudent risk management will act as market makers.
  • Fixed Income Money Market and Derivatives Association of India (FIMMDA) and Financial Benchmark India Private Limited (FBIL) will come out with the list of eligible domestic money or debt market rates as benchmarks like G-Sec, T-Bills, MIBOR, OIS, MIFOR, IRF etc.
  • No documentation relating to underlying exposure is required for exposures upto Rs. 5 crore.

Minimum lot size for IROs on exchanges will be Rs. 2 lakh. In the case of OTC, the minimum lot size will be kept at Rs. 5 crore.