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RBI defers introduction of credit derivatives
Friday, 20 June 2008, 17:15 IST
Mumbai: The Reserve Bank of India (RBI) has decided to defer introduction of credit derivatives following adverse developments in international financial and credit markets.
Announcing this here Thursday evening in an official communiqu, RBI categorically stated it has been decided "to keep in abeyance the issuance of the final guidelines on the introduction of credit derivatives in India".
It did not give any time-frame.
The central bank said that international financial and credit markets have been witnessing "considerable volatility resulting in mounting losses suffered by banks on account of sub-prime crisis," and forcing, "the central banks of those countries to inject liquidity into the system".
RBI stated that it needed "to draw upon the experience of the financial sector of some of the developed countries, particularly in the current circumstances, in which the entire dimensions of the recent credit market crisis have not yet been gauged."
In the present scenario, it said that with the level of "risk management systems and possible non-adherence to the regulatory guidelines on complex products such as credit derivatives, time is not considered opportune to introduce the credit derivatives in India, for the present."
Earlier, in March, 2003, RBI had had issued the draft guidelines for introduction of credit derivatives, seeking comments from banks and other stake holders.
However, taking into account the status of the risk management practices then prevailing in the banking system, the issuance of the final guidelines was deferred.
Subsequently, in the Annual Policy Statement for 2007-08, RBI said that as part of a gradual liberalisation on the financial sector, credit derivatives would be introduced in a calibrated manner.
In May 2007, the modified draft guidelines on credit default swaps were issued and based on the feedback, these were revised and a second draft of the guidelines issued in October 2007 for another round of consultation.
Source: IANS
Source: IANS