RBI Governor Malhotra calls for deeper, more efficient financial markets as India shows resilience amid global headwinds

What Happened

• RBI Governor Sanjay Malhotra, in a keynote address at the 25th FIMMDA-PDAI Annual Conference held in Amsterdam, called for the deepening of India's financial markets to sustain the country's economic growth trajectory amid global headwinds.
• Malhotra identified five priority areas requiring improvement: enhancing liquidity across all Government Securities (G-sec) tenors; broadening OTC interest rate derivatives beyond a few products; encouraging Indian banks to evolve as global Indian Rupee (INR) market-makers; expanding usage of the FX Retail platform for retail forex participants; and developing the credit derivatives market, which remains underutilised.
• The RBI has taken several recent steps toward market deepening: expanding central clearing for FX forwards up to 36 months, introducing electronic trading platforms for forex options, implementing initial margin regulations for non-centrally cleared derivatives, and mandating reporting of OTC rupee derivatives and FX trades.
• The Governor noted that the Indian economy grew at an average of 8.2% during 2021-25, with 7.6% estimated for FY 2025-26, and 6.9% projected for FY 2026-27, demonstrating fundamental macroeconomic resilience despite external headwinds.

Static Topic Bridges

Financial Market Depth: Concept and Indicators

Financial market depth refers to the volume of transactions that can be absorbed by a market without significantly affecting prices. A deep market has many participants, high liquidity, a range of instruments, and efficient price discovery. Depth is measured through indicators like market capitalisation-to-GDP ratio, corporate bond market size-to-GDP ratio, forex market daily turnover, and the bid-ask spreads on government securities. Shallow markets are prone to excess volatility, thin liquidity crises, and poor risk transmission — making them inefficient channels for monetary policy. India's corporate bond market, at approximately Rs 53.6 lakh crore (as of early 2026), has grown 125% in a decade but remains underdeveloped relative to the size of the government debt market and overall economic scale.

Government Securities (G-Secs) and Monetary Policy Transmission

Government Securities (G-Secs) are debt instruments issued by the Central Government (or State Governments, called State Development Loans/SDLs) to finance fiscal deficits. The G-sec market is the bedrock of India's financial system — it provides a risk-free yield benchmark (the "sovereign yield curve") against which all other borrowing rates are priced. The Reserve Bank of India acts as the debt manager for the Central Government under Section 21 of the RBI Act, 1934. RBI conducts Open Market Operations (OMOs) — buying or selling G-secs in the secondary market — to manage liquidity and align market interest rates with the policy repo rate.

FIMMDA, PDAI, and Market Infrastructure

The Fixed Income Money Market and Derivatives Association of India (FIMMDA) was established in 1998 as a representative body for participants in the fixed income, money market, and derivatives markets, including scheduled commercial banks, primary dealers, insurance companies, and public financial institutions. FIMMDA plays a key role in developing market standards, benchmark rates, and valuation norms. The Primary Dealers' Association of India (PDAI) represents primary dealers, which are RBI-accredited institutions that underwrite and make markets in government securities. Primary Dealers are obligated to participate in all G-sec auctions and maintain secondary market liquidity — they are the market-makers of India's government debt market.

OTC Derivatives and Systemic Risk Regulation

Over-the-Counter (OTC) derivatives are financial contracts traded directly between two parties, without going through a formal exchange. They include interest rate swaps, currency forwards, cross-currency swaps, and credit default swaps. OTC markets are larger but less transparent than exchange-traded markets, and their opacity was a key amplifier of the 2008 Global Financial Crisis. Post-2008, the G20 Pittsburgh Summit (2009) mandated: (1) central clearing of standardised OTC derivatives, (2) mandatory trade reporting to trade repositories, and (3) initial margin requirements for non-centrally cleared derivatives. India has progressively implemented these reforms through RBI and SEBI regulations.

Key Facts & Data

• FIMMDA: Fixed Income Money Market and Derivatives Association of India; established 1998.
• PDAI: Primary Dealers' Association of India.
• RBI Governor's speech venue: 25th FIMMDA-PDAI Annual Conference, Amsterdam, May 2026.
• India's GDP growth (average FY21-FY25): 8.2%; FY26 estimate: 7.6%; FY27 projection: 6.9%.
• India's total debt market size: ~Rs 240 lakh crore (~USD 2.8 trillion), early 2026.
• Corporate bond market size: ~Rs 53.6 lakh crore (up 125% in a decade).
• RBI Retail Direct Scheme: Launched November 2021 — retail investors can buy G-secs directly.
• CCIL: India's central counterparty for G-sec, forex, and money market settlement.
• RBI Act, 1934: Section 21 — mandates RBI as debt manager for Central Government.
• Five priority areas identified by RBI Governor: G-sec liquidity across tenors; OTC interest rate derivative product breadth; Indian banks as global INR market-makers; FX Retail platform expansion; credit derivatives development.