Whalesbook
Market Makers Face New Duty on Responsibilities
RBI Governor Sanjay Malhotra told financial market participants that the privileges they enjoy, like exclusive access to markets, come with important duties. Speaking at the FIMMDA-PDAI Annual Conference in Bali on April 18, 2025, he said banks and primary dealers, who get special access to RBI liquidity, must ensure their business goals support the central bank's overall objectives. These key players in over-the-counter (OTC) derivatives markets have significant influence. Malhotra emphasized this means they must guarantee fair market access for everyone and make sure transactions happen under fair, clear terms for all parties, no matter their size.
This emphasis on market integrity and accessibility comes in the wake of the Indian rupee experiencing significant pressure in March 2025, depreciating over 4% due to geopolitical events and amplified by speculative trading. The RBI responded by implementing regulatory measures, including imposing limits on net open positions for onshore rupee derivatives to curb speculation. The central bank's actions also extended to refining liquidity access for primary dealers, with revisions to the Standing Liquidity Facility to align with the prevailing repo rate, aiming to ensure market stability and operational efficiency.
Untapped Markets: Derivatives and Retail FX
Governor Malhotra pointed to specific areas in India's financial markets needing improvement. He noted the credit derivatives market, especially credit default swaps (CDS), is not being used enough for hedging corporate debt default risks. While credit derivatives are key in developed markets, India's growth has been held back by its bond market structure, which mainly features highly-rated issuers. Low activity is also due to regulatory challenges, as these products are innovative and traded directly between parties, making oversight difficult.
Another important area is the adoption of the FX Retail platform. Malhotra asked all banks to help make this platform more accessible so retail users, like individuals and small to medium businesses, get fair terms. Projects such as the RBI's pilot program linking FX-Retail with the Bharat Connect bill payment system, launched in October 2025, aim to give retail customers direct digital access to competitive, real-time foreign exchange rates and a clear process for buying US dollars. The goal is to overcome issues of low awareness and difficult sign-up processes that have limited the platform's reach.
India's Economy Shows Resilience Despite Global Headwinds
Despite global economic headwinds, the Indian economy has demonstrated remarkable resilience. Robust growth impulses are being sustained by strong domestic consumption and public investment. Recent GDP figures for Q1 FY 2025-26 showed a significant expansion of 7.8%, driven by strong performance in the services sector. For the fiscal year 2025-26, projections estimate GDP growth around 6.6%. The current account deficit remains sustainable, with trade agreements expected to mitigate pressures from elevated energy prices. Foreign direct investment (FDI) has been encouraging, particularly in the finance and tech sectors, with inflows surging in 2025. India's foreign exchange reserves stood at approximately $698.5 billion as of April 24, 2025. However, the rupee experienced depreciation pressure in March 2025, influenced by geopolitical events and speculative activities. The RBI has engaged in currency management, including interventions and regulatory measures, to stabilize the rupee. Forecasts for the rupee by March 2025 suggested potential depreciation to 87 against the US dollar, influenced by broader dollar strength and trade tensions.
Persistent Challenges: Market Gaps and Rupee Volatility
Despite India's economic strength, significant structural problems remain. The weak credit derivatives market means businesses miss out on advanced risk management tools, leaving them more vulnerable to default than companies in richer economies. This lack of hedging options can raise broader risks during tough times. Also, the RBI's active role in the foreign exchange market, though needed for stability, shows how susceptible the rupee is to global shocks and speculation. While the FX Retail platform looks promising, its low use suggests potential hurdles or lack of awareness that must be tackled to make it truly inclusive. The ongoing pressure on the rupee, highlighted by its drop to record lows by April 2026, shows the difficulty in balancing growth with external stability, particularly with rising global oil prices and trade deficits. The large foreign exchange reserves act as a buffer, but have been drawn down by efforts to curb currency drops, showing the cost of maintaining stability.