The RBI draft guidelines on IRS and FRAs, released on Tuesday, allows commercial banks, primary dealers and financial institutions to undertake FRAs and IRS as products for their own balance sheet management and also offer them to corporates. However, while dealing with corporates, banks and institutions must ensure that companies are undertaking FRAs and IRS only for hedging their own rupee balance sheet exposures, the central bank said.

The central bank will announce the guidelines on IRS and FRAs on July 5 after taking into account suggestions from the market. RBI governor Bimal Jalan announced the introduction of IRA and FRAs in the April credit policy. The objective is to facilitate hedging of interest rate risks and ensuring orderly development of the derivative market.

The RBI has allowed the banks andinstitutions to use any domestic money or debt market rate as benchmark rate for entering into FRAs and IRS provided the methodology of computing the rate is objective, transparent and acceptable to counterparties, the draft guidelines said.