Privileges come with responsibilities and market makers should ensure that broader regulatory objectives are met in letter and spirit even as they pursue their organisational interests, Reserve Bank of India (RBI) Governor Sanjay Malhotra said in Amsterdam on Friday.
Malhotra cited examples of banks and primary dealers who had exclusive access to the RBI’s liquidity facilities. “They are market makers in over-the-counter derivatives, implying that every entity can only transact with you for hedging.”
He was speaking at the annual conference of the Fixed Income Money Market and Derivatives Association of India and the Primary Dealers Association of India.
“Users must approach them to meet their market needs. These privileges accord immense market power to primary dealers and banks, which is beneficial for their growth,” he said.
He said it was the responsibility of market makers to ensure that every user had easy access to financial markets and could transact on fair and transparent terms, irrespective of size and sophistication.
Malhotra’s comments come after the Indian currency was pressured in March following the conflict in West Asia. The situation was aggravated because of speculative activities resulting in the currency depreciating over 4 per cent in the month.
The RBI had to take measures to cut speculation by imposing a limit on the net open position on rupee derivatives onshore. He said the responsibilities were also to protect, promote, and sustain market integrity.
Commenting on the areas of improvement for financial markets, he said the development of credit derivatives was yet to take off in any meaningful way. “This is largely an underutilised area,” he said.
Credit derivatives, particularly credit-default swap (CDS), are considered an important component of a developed corporate debt market because they allow investors to hedge against the risk of default or adverse credit events by issuers. Activity in the CDS market remains limited, reflecting structural characteristics of India’s corporate bond market, which is dominated by highly rated issuers.
Another area of improvement, according to Malhotra, is the usage of the forex retail platform, which remained limited. “All banks should facilitate this as a priority so that retail users get a fair deal.”
Malhotra said priorities at the RBI remained clear. It will continue to deepen financial markets, broaden participation, and further strengthen institutional frameworks.
Commenting on the economy, the governor said it had shown remarkable resilience against a challenging global backdrop.
“Growth impulses in the economy have remained robust. Domestic demand continues to be supported by strong consumption and public investment,” he said.
On the external front, Malhotra said India’s forex reserves were comfortable, with 11 months of import cover, and current account deficit was sustainable. According to the latest data, India’s forex reserves were at $698.5 billion as of April 24, 2026.
“The current account deficit (CAD) is sustainable. While elevated energy prices will exert upward pressure on the deficit, the recently concluded trade agreements should offset some of the impact.”
On the capital account, gross foreign direct investment (FDI) has been encouraging and will remain robust with the recent of greenfield FDI announcements, especially in the finance and tech sectors, he said.
“With recent correction in financial asset valuations, we expect repatriations to moderate, improving the net capital account position,” he added.
