In a keynote address at the FIMMDA-PDAI Annual Conference in Amsterdam, RBI Governor Sanjay Malhotra sent a clear message to banks and primary dealers: the exclusive privileges they enjoy in the financial ecosystem come with an unwavering responsibility to maintain market integrity.
The Governor’s remarks follow a turbulent period for the Indian Rupee, which saw a 4% depreciation in March 2026 due to West Asian geopolitical tensions and heightened speculative activity.
Key Takeaways from Governor Malhotra’s Address
1. Accountability of Market Makers
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The Privilege: Banks and Primary Dealers (PDs) have exclusive access to the RBI’s liquidity facilities and act as the sole gatekeepers for OTC derivative hedging.
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The Mandate: This “immense market power” must be used to ensure every user—regardless of size or sophistication—has access to fair and transparent terms.
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Regulatory Spirit: Malhotra emphasized that market participants must follow regulatory objectives “in letter and spirit,” rather than just pursuing organizational profit.
2. Areas for Market Development
The Governor highlighted two specific segments where India’s financial markets are currently underperforming:
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Credit Derivatives (CDS): This remains a largely “underutilised area.” A robust Credit Default Swap market is essential for a mature corporate debt market, allowing investors to hedge against default risks.
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FX Retail Platform: Usage remains limited. Malhotra urged banks to prioritize this platform to ensure retail users receive fair exchange rates.
3. Economic Outlook & External Resilience
Despite global headwinds and elevated energy prices, the RBI maintains a confident stance on the Indian economy:
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Growth: Driven by robust domestic consumption and public investment.
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Forex Reserves: Standing strong at $698.5 billion (as of late April), providing roughly 11 months of import cover.
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Capital Account: While energy prices pressure the Current Account Deficit (CAD), the RBI expects the net capital account position to improve. This is due to encouraging FDI in tech and finance, alongside a predicted moderation in repatriations following recent valuation corrections.
Context: The March Currency Crunch
The speech serves as a post-mortem for the volatility seen in March 2026. At that time, the RBI was forced to impose strict limits on net open positions in onshore rupee derivatives to curb speculation. The Governor’s current focus on “responsibility” suggests that the central bank expects market makers to self-regulate more effectively to prevent the need for further aggressive intervention.
