RBI Annual Report FY 2025-26: Financial Market Regulation

The RBI Annual Report FY 2025-26 shows that the Reserve Bank’s financial-market strategy during the year was not simply about regulating existing markets. It focused on deepening participation, modernising market infrastructure, improving transparency, reducing compliance burden, encouraging innovation and maintaining orderly market conditions.

Two departments are central to this framework:

Financial Markets Regulation Department (FMRD) — responsible for development, regulation and surveillance of major financial markets.
Financial Markets Operations Department (FMOD) — responsible primarily for liquidity-management operations supporting monetary-policy implementation and for operations aimed at maintaining orderly conditions in the foreign exchange market.

For RBI Grade B Promotion Exam, Grade B, UPSC, IBPS and banking interviews, this part is especially important because the Annual Report contains several one-line factual questions as well as broader conceptual questions on how RBI develops and regulates financial markets.

Scope note: Foreign-exchange-management developments are dealt with separately in Part 14 of the series. Here the emphasis is on financial-market regulation and RBI market operations.

1. What Does the Financial Markets Regulation Department Do?

The Financial Markets Regulation Department (FMRD) is responsible for the:

development;
regulation; and
surveillance

of the following markets:

Money market
Government securities market
Interest rate derivatives market
Foreign exchange market
Credit derivatives market

This is a critical distinction for examinations.

FMRD = Regulation, Development & Surveillance

Think:

FMRD → rules + market development + surveillance

Whereas:

FMOD → operations + liquidity management + orderly market conditions

2. FMRD’s 2025-26 Agenda

The FMRD had two particularly important goals for 2025-26.

Goal 1: Greater transparency in OTC derivatives

The RBI planned to introduce a Unique Transaction Identifier (UTI) requirement for over-the-counter derivative transactions, in line with global developments and under Utkarsh 2.0.

Goal 2: Expand FX-Retail

The FX-Retail platform was to be linked with Bharat Connect, earlier known as the Bharat Bill Payment System.

The objective was to:

expand the reach of FX-Retail;
improve user experience; and
initially facilitate purchase of US dollars against the rupee by individuals and sole proprietorships.

Both objectives reflect a common RBI theme:

Technology + transparency + wider access + lower friction

3. Unique Transaction Identifier: Transparency in OTC Derivatives

The RBI issued directions mandating UTI for OTC derivative transactions on February 18, 2026.

Subsequently, instructions concerning:

Legal Entity Identifier (LEI), and
UTI

were consolidated into a single:

Master Direction on Unique Identifiers in Financial Markets

issued on March 27, 2026.

Why is UTI important?

OTC derivatives are not traded through a centralised exchange in the same manner as standardised exchange-traded contracts.

A unique identifier helps regulators and market participants identify and track individual transactions more effectively.

For exam purposes:

UTI → OTC derivatives → greater transparency → February 18, 2026

4. FX-Retail Linked with Bharat Connect

The RBI linked FX-Retail with Bharat Connect on October 7, 2025.

In the first phase, the facility enabled individuals to purchase US dollars.

This is important because it represents the RBI’s attempt to bring retail users closer to organised foreign-exchange infrastructure.

5. Rupee Interest Rate Derivatives Framework Re-issued

The RBI reviewed the existing regulatory framework for Rupee Interest Rate Derivatives (IRD).

The revised framework was re-issued on:

December 8, 2025

The review reflected:

evolution of the IRD market;
financial-system risk-management requirements; and
the need for greater transparency in the rupee IRD market.

Exam Memory Hook

IRD → reviewed/re-issued → December 8, 2025 → transparency + risk management

6. Municipal Bonds as Repo Collateral

One of the interesting market-development measures was the notification of:

Municipal bonds as eligible collateral for repo transactions

The measure was taken in consultation with the Government of India and was intended to give a fillip to the municipal bond market.

Why does this matter?

Repo eligibility improves the liquidity and financing utility of a security.

Therefore:

Municipal bonds + repo eligibility

can help deepen the market for municipal financing by making such securities more useful within the financial system.

7. Changes in FPI Investment in Corporate Debt

The RBI recalibrated the investment regime governing Foreign Portfolio Investors (FPIs) in debt securities.

Under the general route for corporate debt securities:

The short-term investment limit and concentration limit were withdrawn.

This provided greater flexibility to FPIs investing in corporate debt.

Another important measure was permission for surplus balances in Special Rupee Vostro Accounts (SRVAs) to be invested in:

Central Government securities, including Treasury Bills;
non-convertible debentures/bonds; and
commercial paper.

8. Changes to the Voluntary Retention Route

The RBI also sought to improve predictability concerning investment limits under the Voluntary Retention Route (VRR).

From:

April 1, 2026

investments under VRR would be reckoned under the limit for FPI investments under the general route.

Further, FPIs with retention periods longer than the minimum retention period were given an option to liquidate their portfolio, fully or partly, and exit VRR after the minimum retention period.

Exam Point

Remember the three broad FPI debt routes discussed in the Annual Report:

General Route
VRR
FAR

The 2025-26 regulatory changes particularly affected the treatment of VRR and general-route limits.

9. Electronic Trading Platforms: Modernising Market Infrastructure

The RBI reviewed the regulatory framework for electronic trading platforms in view of:

greater integration of onshore and offshore financial markets;
technological developments; and
increasing product diversity.

Several important changes followed.

Forex forward contracts

Trading and guaranteed settlement facilities were introduced for forex forward contracts with tenors up to:

36 months

up from the earlier:

13 months.

This is a very strong factual question.

Forex forward tenor: 13 months → 36 months

10. NDS-OM Linked with Global Bond Trading Platforms

The RBI made provision for connecting:

NDS-OM

with global bond trading platforms.

NDS-OM is the anonymous order-matching platform for government securities.

The purpose was to facilitate the electronification of non-resident trades in government securities.

Exam Concept

NDS-OM → Government securities → anonymous order matching

And in FY 2025-26:

NDS-OM → connectivity with global bond trading platforms

11. Tokenised Certificates of Deposit and Wholesale CBDC

This is one of the most technologically significant developments in the chapter.

The RBI commenced a pilot for:

issuance and trading of Certificates of Deposit in tokenised form

using the:

Unified Markets Interface (UMI)

with settlement using:

wholesale Central Bank Digital Currency (CBDC).

The pilot combines three important concepts:

Tokenisation

Distributed Ledger Technology (DLT)

Wholesale CBDC settlement

Exam Point

If asked:

Which instrument was selected for tokenised issuance and trading under the UMI pilot?

Answer:

Certificates of Deposit (CDs).

12. Money-Market Trading Hours Extended

Following recommendations of the Working Group reviewing trading and settlement timings in RBI-regulated financial markets, the timings of both:

collateralised money-market segments; and
uncollateralised money-market segments

were extended.

This was part of the broader objective of improving market efficiency and accommodating the evolution of market microstructure.

13. FIMMDA Recognised as an SRO

The:

Fixed Income Money Market and Derivatives Association of India (FIMMDA)

was granted recognition as a:

Self-Regulatory Organisation (SRO) in financial markets.

Exam Trap

Do not simply memorise FIMMDA = bond market association.

For FY 2025-26, the key development is:

FIMMDA received recognition as an SRO in financial markets.

14. SORR: A New Benchmark for Secured Money Markets

One of the most important developments is the introduction of:

Secured Overnight Rupee Rate (SORR)

SORR is a benchmark based on secured money markets, specifically:

basket repo; and
triparty repo (TREP).

The benchmark was authorised by the RBI, and:

Financial Benchmarks India Private Limited (FBIL)

commenced its publication from:

July 7, 2025.

Why was SORR needed?

The Annual Report notes the evolution of money-market microstructure, with collateralised markets becoming the dominant segment.

Therefore, a benchmark reflecting secured overnight market conditions becomes increasingly relevant.

Remember:

SORR = Secured Overnight Rupee Rate

Basis = Basket Repo + TREP

Published by = FBIL

Publication began = July 7, 2025

15. Additional FBIL Reference Rates

To deepen the onshore foreign-exchange market and encourage banks to quote rates directly in a wider range of currency pairs, FBIL was authorised to publish reference rates for currencies of India’s major trading partners.

Additional reference-rate publication commenced from:

January 5, 2026.

This is relevant to Part 13 because it forms part of RBI’s broader financial-market infrastructure development, although detailed FX developments will be covered in Part 14.

16. RBI’s Approach to INR Volatility

Authorised Dealers (ADs) were mandated to maintain their:

Net Open Position involving INR (NOP-INR)

in the onshore deliverable market within:

US$100 million

at the end of each business day, at the earliest but no later than April 10, 2026.

The stated objective was to support orderly market conditions and curb:

excessive volatility; and
speculative positions.

17. What Is the Financial Markets Operations Department?

The Financial Markets Operations Department (FMOD) has a different role from FMRD.

FMOD is primarily responsible for conducting:

Liquidity-management operations

for implementing monetary-policy objectives.

It also undertakes operations to ensure orderly conditions in the foreign-exchange market through:

onshore operations; and
offshore market operations.

This distinction is extremely important:

Department	Core role
FMRD	Development, regulation & surveillance
FMOD	Liquidity management & market operations

18. FMOD’s Agenda for 2025-26

FMOD identified three major goals:

Review the liquidity-management framework
Undertake foreign-exchange operations to curb excessive USD/INR volatility
Conduct policy-oriented research and analysis on financial markets to guide market-operation strategies.

The first objective is particularly important because the existing liquidity-management framework had been operational since February 2020.

19. Revised Liquidity Management Framework

An:

Internal Working Group (IWG)

was constituted to review the liquidity-management framework.

Following the IWG’s recommendations and stakeholder feedback, a revised framework was introduced with effect from:

September 30, 2025.

The detailed operational framework and transmission implications were discussed in Part 11.

For this article, the exam-relevant point is:

Revised liquidity management framework → effective September 30, 2025.

20. RBI Market Operations During INR Volatility

During FY 2025-26, the rupee experienced episodes of volatility due to:

geopolitical tensions;
tariff-related uncertainty;
widening merchandise trade deficit; and
higher oil prices during the final quarter.

The Reserve Bank intervened through operations in:

onshore OTC markets;
offshore OTC markets; and
exchange-traded currency derivatives.

The objective was to:

maintain orderly market conditions and contain excessive exchange-rate volatility.

This is an important conceptual point:

RBI intervention does not mean targeting a particular rupee level.

The Annual Report frames these operations in terms of orderly market conditions and containing excessive volatility.

21. Policy-Oriented Research by FMOD

FMOD also conducted research on financial-market developments during 2025-26.

Areas included:

drivers of Certificate of Deposit issuances;
alternative measures for assessing the fair value of INR;
impact of Indian government bonds being included in global bond indices;
evolving money-market dynamics; and
efficiency of monetary-policy transmission.

This demonstrates that RBI market operations are supported by continuous analytical work rather than being purely mechanical interventions.

22. RBI Financial-Market Reform: The Bigger Picture

The individual reforms in FY 2025-26 become easier to remember when grouped into five themes.

A. Transparency

UTI for OTC derivatives

↓

Better identification and reporting of transactions.

B. Market Deepening

Municipal bonds eligible as repo collateral

↓

Potentially greater liquidity and market participation.

C. Global Integration

NDS-OM linked with global bond platforms

↓

Greater electronic access for non-resident transactions.

D. Technology

Tokenised CDs + UMI + wholesale CBDC

↓

Financial-market infrastructure embraces tokenisation and DLT.

E. Better Benchmarks

SORR

↓

Benchmark better aligned with the growing importance of secured money markets.

This is the underlying story of the chapter:

RBI is simultaneously modernising market infrastructure, broadening participation, improving transparency and preserving financial stability.

23. High-Value Comparison Table

Development	Key fact
UTI directions	Feb. 18, 2026
Master Direction on Unique Identifiers	March 27, 2026
FX-Retail linked with Bharat Connect	Oct. 7, 2025
Rupee IRD framework re-issued	Dec. 8, 2025
Municipal bonds	Eligible as repo collateral
FPI corporate debt	Short-term & concentration limits under general route withdrawn
Forex forward tenor	13 → 36 months
NDS-OM	Linked with global bond trading platforms
Tokenised instrument	Certificates of Deposit
Settlement technology	Wholesale CBDC
Technology platform	UMI
FIMMDA	Recognised as SRO
SORR	Secured Overnight Rupee Rate
SORR basis	Basket repo + TREP
SORR publication	July 7, 2025
Additional FBIL reference rates	From Jan. 5, 2026
NOP-INR limit	US$100 million
Revised liquidity framework	Effective Sept. 30, 2025

Exam Point: FMRD vs FMOD

This is one of the easiest areas from which an objective question can be framed.

FMRD	FMOD
Financial Markets Regulation Department	Financial Markets Operations Department
Development of financial markets	Conduct of market operations
Regulation	Liquidity management
Surveillance	Monetary-policy implementation
Money market	Liquidity operations
G-sec market	Forex operations for orderly conditions
IR derivatives	Policy-oriented market analysis
FX market	—
Credit derivatives	—

The Annual Report explicitly assigns FMRD responsibility for development, regulation and surveillance, while FMOD is primarily responsible for liquidity-management operations supporting monetary-policy objectives.

Exam Revision: 15 One-Liners

FMRD handles development, regulation and surveillance of major financial markets.
FMRD covers money, G-sec, IR derivatives, FX and credit derivatives markets.
UTI directions for OTC derivatives were issued on February 18, 2026.
Master Direction on Unique Identifiers was issued on March 27, 2026.
FX-Retail was linked with Bharat Connect on October 7, 2025.
Rupee IRD framework was re-issued on December 8, 2025.
Municipal bonds were made eligible as repo collateral.
FPI short-term and concentration limits under the general corporate-debt route were withdrawn.
Forex forward contract tenor increased from 13 months to 36 months.
NDS-OM was connected with global bond trading platforms.
The tokenisation pilot concerns Certificates of Deposit.
Tokenised CDs use UMI, with settlement through wholesale CBDC.
FIMMDA was recognised as an SRO.
SORR is based on basket repo and TREP; FBIL began publishing it on July 7, 2025.
The revised liquidity-management framework became effective on September 30, 2025.

Key Takeaways

FY 2025-26 saw significant modernisation of India’s financial-market infrastructure.
FMRD is responsible for development, regulation and surveillance of financial markets.
FMOD conducts liquidity-management operations for monetary-policy implementation.
The RBI introduced UTI requirements for OTC derivatives.
The RBI re-issued the Rupee Interest Rate Derivatives framework.
Municipal bonds became eligible as repo collateral.
FPI corporate-debt investment restrictions under the general route were recalibrated.
Forex forward trading and guaranteed settlement tenors were expanded from 13 to 36 months.
NDS-OM was connected with global bond trading platforms.
A pilot began for tokenised Certificates of Deposit using UMI and wholesale CBDC settlement.
FIMMDA received SRO recognition.
SORR became an important benchmark for secured overnight money markets.
The revised liquidity-management framework became effective September 30, 2025.
RBI market operations during periods of rupee volatility were directed towards orderly market conditions and containing excessive volatility.
The broad regulatory philosophy was to deepen markets while improving transparency, efficiency, technology adoption and ease of doing business.

Final 60-Second Revision Sheet

FMRD

Development + Regulation + Surveillance

Markets

Money + G-sec + IRD + FX + Credit Derivatives

UTI

OTC derivatives → Feb 18, 2026

SORR

Secured Overnight Rupee Rate

Basket Repo + TREP → FBIL → July 7, 2025

FIMMDA

Recognised as SRO

Municipal Bonds

Eligible as repo collateral

NDS-OM

Connected to global bond trading platforms

Tokenised CDs

CD + UMI + wholesale CBDC

Forex Forward

13 months → 36 months

FPI Debt

General-route short-term + concentration limits withdrawn

FMOD

Liquidity management + market operations

Liquidity Framework

Revised → September 30, 2025

Most Probable Exam Areas

Priority 1 — Must Memorise

SORR and its basis
FIMMDA as SRO
Tokenised CD + UMI + wholesale CBDC
NDS-OM/global bond-platform linkage
13 → 36 months forex forward tenor
Municipal bonds as repo collateral
FMRD vs FMOD

Priority 2 — Very Important

UTI and Master Direction on Unique Identifiers
FPI corporate-debt regulatory changes
Revised liquidity framework date
FX-Retail/Bharat Connect

Priority 3 — Conceptual

Why secured-market benchmarks matter
Why repo eligibility can deepen bond markets
Why tokenisation and wholesale CBDC can modernise financial-market settlement
Why RBI conducts market operations during periods of excessive volatility

The central lesson from this chapter is simple: RBI’s FY 2025-26 financial-market policy combined regulation with market development. It did not merely impose restrictions; it simultaneously sought deeper markets, broader participation, improved transparency, technological modernisation and more efficient infrastructure.

Part 13 complete.