EMPIRICAL STUDY

IMPORTANCE AND POTENTIAL OF CDS IN INDIA

SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS OF POST

GRADUATE DIPLOMA IN MANAGEMENT

TO

RAMAIAH INSTITUTE OF MANAGEMENT

BY
Anusha P
211239

UNDER THE GUIDANCE OF

Prof Sanjay Chari

RAMAIAH INSTITUTE OF MANAGEMENT

BANGALORE - 560 054.
Batch 2021-23
 CERTIFICATE BY THE GUIDE

Certified that this dissertation titled Importance and Potential of CDS in India is based

on an original study conducted by Anusha P 211239 under my guidance. She has attended

the required guidance sessions held. This project report has not formed a basis for awarding

any other Degree / Diploma from any University or Institution.

SIGNATURE OF THE GUIDE:

NAME OF THE GUIDE: Prof Sanjay Chari

DESIGNATION: Professor, Department of Finance & General Management

QUALIFICATION: B.SC, MBA, PMP

 STUDENT DECLARATION

I hereby declare that the Project Report on Importance and Potential of CDS in India under

the guidance of Prof Sanjay Chari submitted in partial fulfillment of the requirements for the

degree of POST GRADUATE DIPLOMA IN MANAGEMENT is my original work and

the same has not been submitted earlier for the award of any other

Degree/Diploma/Fellowship.

Anusha P

211239

Place: Bangalore
Date:
 CONTENTS
I Introduction

II Review of the Literature

III Problem Statement

IV Objectives of the Study

1 Overview of US CDS Market

2 The Role of Credit Derivatives.
3 Credit Derivatives: Reasons to use by Banks.
4 The potential benefit of CDS.
5 RBI Control and Regulatory Mechanisms on CDS in India.
6 Lessons to help the Indian banking industry use credit
default swaps.
V Methodology

VI Data Analysis

VII Limitations of the study

References
ABSTRACT
In the previous ten years, banks had been quite aggressive with their lending due to the strong
domestic economy and low default rates. The Indian banking sector's total asset size
increased from $250 billion to $1.3 trillion between 2001 and 2010, growing by an average of
18% annually. The India Brand Equity Foundation estimates that between 2007 and 2012, the
annual rate of credit growth was 23%. Banks stored credit risk throughout this time. A
mechanism for credit risk management appears essential given the significant NPA
provisioning being made by most PSUs, such as SBI and PNB. Credit Default Swaps, a
fundamental credit derivative product, appear to be the best option at this time. There are two
schools of thought. One says Credit Derivatives are good and would help the banks in
improving their balance sheets. The other school thinks differently. They say as a banker it is
the responsibility of the bank to be well aware of the risk it is taking. With the advent of
credit derivatives, the banks will be able to shift the credit risk and as such will not scrutinize
the credit proposition as well as they should; because they can easily transfer the credit risk
by using credit derivatives It is now vital to pinpoint the issues and future directions for the
development of the Indian credit default swaps market. Additionally, an effort must be made
to learn from other countries' experiences before customizing the product and strategy for
Indian participants. In light of these considerations, the researcher has carried out a study
with the special heading "importance and potential of the Indian credit default swap market."
This study indicates that although credit derivatives are growing slowly in India, there is still
little sense of urgency. Bond financing is not seen favourably by Indian corporations.

INTRODUCTION
The first CDS trade was carried out by banks trust in 1991, but J.P. Morgan bank is widely
credited with inventing the modern credit default swap in 1995. In that case, after the Exxon
Valdez oil disaster raised concerns about the failure of the second-largest oil company in the
world, J.P. Morgan closed what is widely regarded as the first CDS trade by purchasing
protection on the Exxon corporation from the EBRD.
During 1995-1999, all major Wall Street and London dealing houses created their first CDS
desks and market saw the first basket trade in 1998. During 2000-2003, single name CDS
were quoted across the capital structure and Rating spectrum. Bank Traders, Hedge funds and
Insurers dominated the CDS markets with minimal participation from Mutual funds, Pension
funds, corporates etc. However, during the Lehman crisis, the CDS market faced significant
issues and losses. Major reason were the ‘insurance’ being higher than the outstanding value
of assets insured and reduction of asset values in liquidity crisis. As in December 2014, the
gross notional amount of CDS contracts worldwide was US$ 16399 billion (source –BIS) In
addition to single name CDS, there were a few indices including Markit, iTTRAXX, Fitch
and S&P indices which had become popular during 2003-2008 period. ISDA (International
Swaps and Derivatives Association) provides definitions of derivative products and credit
events and the ISDA master agreement is typically used between derivatives dealers for OTC
(over the counter) trades. Despite the concerns & financial troubles in European and other
developed markets in 2008, credit default swaps have proved to be a useful portfolio
management and speculation tool, and is likely to remain an important and critical part of the
financial markets CDS market structure in India
Origin of credit default swap in India
Capital infusion is frequently required for a company to operate, and there are generally two
ways to meet this need: (a) to infuse equity into the organization, and (b) to obtain loans.
Even if a loan is secured by an underlying asset, it is possible for the lender to end up with a
non-performing asset when a company takes out a loan. One such method by which the
lenders try to reduce their risk is the Credit Default Swap ("CDS").
To put it simply, CDS acts as insurance for lenders against potential defaults by the
borrowing entity. A derivative contract known as a CDS requires the lender to pay a periodic
sum to a CDS protection seller, who then agrees to repay the defaulted amount, including the
principal and interest, in the event of the occurrence of a predetermined default event. Thus,
the lenders "swap" their default risk with the seller of CDS protection from a third party,
giving rise to the term "credit default swap."
Although CDS has been around since the early 1990s, J.P. Morgan is credited with
popularizing it in order to remove credit risk from their books, comply with capital adequacy
standards, and increase the amount of money available for lending.1 The Reserve Bank of
India ("RBI") has released the Reserve Bank of India (Credit Derivatives) Directions, 20222
("Master Directions") in place of the current regulations3.
The price of a credit default swap is as “spread,” which is determined in basis points (bp), or
one-hundredths of a percentage point. The credit default swap, one of the key indicators of
the credit risk.
example: XYZ plc credit spreads are currently trading at 120 basis points (bps) relative to
government issued securities for fiveyear maturities and 195 bps for 10-year maturities. A
portfolio manager hedges a $10m holding of a 10-year paper by purchasing the following
CDS, written on the five-year bond. This hedge protects for the first five years of the holding,
and in the event of XYZ’s credit spread widening, will increase in value and may be sold on
before expiry at profit. The 10-year bond holding also earns 75 bps over the shorter-term
paper for the portfolio manager.
Term: 5 years Reference Credit: XYZ plc 5 yr bond Swap Premium: 3.35%
Credit event payout date: The business day following occurrence of specified credit event
Default payment: Nominal value of bond × [100 – Price of bond after credit event]
Assume now that midway into the life of the swap there is a technical default on the XYZ plc
five-year bond, such that its price now stands at $28. Under the terms of the swap the
protection buyer delivers the bond to the protection seller, who pays out $7.2m to the
protection buyer.
The CDS enables one party to transfer its credit risk exposure to another party. Banks may
use default swaps to trade sovereign and corporate credit spreads without trading the actual
assets themselves; for example, someone who has gone long a default swap (the protection
buyer) will gain if the reference asset obligor suffers a rating downgrade or defaults, and can
sell the default swap at a profit if he can find a counterparty buyer. This is because the cost of
protection on the reference asset will have increased as a result of the credit event. The
original buyer of the default swap may never have owned a bond issued by the reference asset
obligor.
REVIEW OF THE LITERATURE:
1. "Credit Derivatives for Hedging Credit Risk: An Indian Perspective" by Prasanna K
Baral examines the potential use of credit derivatives in India as a tool for hedging credit risk.
The paper provides an overview of credit derivatives and their role in managing credit risk, as
well as the challenges that currently exist in the Indian credit market. The author analyzes the
benefits and challenges of using credit derivatives in India, including the transfer of credit
risk, reduction of capital costs, and improved risk management practices. However, the paper
also highlights the need for greater regulatory clarity and a more robust market infrastructure
in order for credit derivatives to be effectively used in India. Overall, the paper presents a
comprehensive analysis of the potential role of credit derivatives in hedging credit risk in
India and the challenges that must be addressed in order to realize their full potential.
2. "Does the tail wag the dog? The effect of credit default swaps on credit risk" by Marti
G. Subrahmanyam explores the impact of credit default swaps (CDS) on credit risk. The
paper provides an overview of CDS and their role in managing credit risk, and analyzes the
factors that influence CDS spreads and how they relate to changes in credit risk. The author
examines the direct and indirect effects of CDS trading on credit risk and argues that while
CDS can be an effective tool for managing credit risk, there is evidence to suggest that CDS
trading can also increase credit risk, particularly during periods of market stress. The paper
concludes that while CDS can be useful, their impact on credit risk is complex and can vary
depending on market conditions. The paper emphasizes the need for further research to better
understand the relationship between CDS and credit risk and to develop more effective risk
management practices. Overall, the paper provides a comprehensive analysis of the impact of
CDS on credit risk, highlighting both the benefits and potential risks associated with CDS
trading.
3. "Credit Derivatives in Banking: Useful Tools for Managing Risk?" by Gregory Duffee
examines the use of credit derivatives in banking as tools for managing risk. A model of a
bank that has an opportunity to make loans was constructed. The risk of loan default can
expose the bank to its own financial distress. The bank can sell any fraction of the loan in
order to reduce its expected costs of distress, but because the bank has superior information
about loan quality, the loan sale market is affected by an asymmetric-information problem.
The researchers built in a role for credit derivatives in the model by assuming that the
magnitude of the asymmetric information varies during the life of the loan. A credit-
derivative contract that transfers the loan’s risk when the lemons problem is smallest can be
used by the bank to reduce its risk of financial distress. If the asymmetric information
problem is sufficiently severe, the loan-sale market will be of only limited use to banks, and
thus the opportunity to use credit derivatives will be valuable to the bank. However, when
one considers the effects that a credit-derivatives market has on other markets for sharing
risks, the introduction of a credit-derivatives market does not necessarily benefit the bank. If,
prior to this introduction, the asymmetricinformation problem was not severe enough to limit
the use of the loan-sale market, the addition of a market in credit derivatives can be harmful.
The new market can alter investors’ expectations of the quality of loans sold in the loan-sale
market and thereby dramatically change the nature of equilibrium in this market. Thus,
although the credit-derivatives market will be useful to the bank, its presence makes the loan-
sale market much less useful. We find that if the asymmetric-information problem is one of
adverse selection, the net effect is to leave the bank worse off, while if the problem is one of
moral hazard, the bank is better off.
4. "Regime switching dynamics in credit default swaps" by Alex Yi Hou Huang examines
the impact of regime-switching dynamics on credit default swaps (CDS) pricing. The paper
introduces the concept of regime-switching, where changes in market conditions can affect
the behavior of financial instruments, and applies regime-switching models to CDS data to
analyze its pricing dynamics. The paper finds that regime-switching can significantly impact
CDS pricing, with changes in market conditions leading to changes in pricing dynamics. Two
distinct regimes in CDS pricing dynamics were identified, one characterized by higher
volatility and the other by lower volatility. The paper also finds evidence of regime-switching
effects on the relationship between CDS pricing dynamics and macroeconomic variables,
such as interest rates and equity prices. The paper concludes that proper risk management
practices that take into account regime-switching effects are necessary when pricing and
managing credit risk using CDS. Overall, the paper provides a comprehensive analysis of the
impact of regime-switching dynamics on CDS pricing, emphasizing the need for a deeper
understanding of market conditions and effective risk management practices in credit risk
management.

PROBLEM STATEMENT:
In India, only banks, PDs (Primary Dealers), and financially strong NBFCs (Non-Banking
Financial Companies) are allowed to sell protection, while FIIs (Foreign Institutional
Investors) and hedge funds cannot sell protection. The user is also restricted from buying
CDS (Credit Default Swap) for amounts exceeding the face value of corporate bonds, and
they cannot maintain naked CDS protection. The RBI (Reserve Bank of India) has allowed
insurance companies and mutual funds to be sellers, subject to IRDA (Insurance Regulatory
and Development Authority) and SEBI (Securities and Exchange Board of India) permitting
them. However, this is not likely until the market develops somewhat. Entities that are
permitted to quote both buy and sell CDS spreads need to meet the minimum CAR (Capital
Adequacy Ratio) of 11% and net NPA (Non-Performing Asset) of less than 3%. As the
majority of Indian corporate bonds are AAA rated, there are not many incentives for banks
and other market players to buy/sell CDS. CDS is mainly an OTC (Over-The-Counter)
product, and the parties involved have to agree upon the terms and conditions of the CDS
individually. For transactions involving users, physical settlement is mandatory. Market-
makers are required to report their CDS trades with both users/investors and other market-
makers on the reporting platform of CDS trade repository within 30 minutes from the deal
time. The users would be required to affirm or reject their trade already reported by the
market-maker by the end of the day.

OBJECTIVES OF THE STUDY:

 To know the meaning of Credit Derivatives and the role played by them.
 To know the reasons of using Credit Derivatives by banks to manage risks.
 To know the importance of introducing Credit Derivatives in India.

Overview of US CDS Market

The US credit default swap (CDS) market is a significant component of the country's
financial landscape. CDSs are derivative instruments that allow investors to protect
themselves against the risk of default on debt obligations. This market plays a crucial role in
managing credit risk and providing liquidity to market participants.

The US CDS market is one of the largest and most liquid in the world, reflecting the country's
deep and diverse financial markets. It comprises various participants, including financial
institutions, hedge funds, insurance companies, and institutional investors. These participants
utilize CDSs for a range of purposes, such as hedging against credit risk, speculating on
credit events, or taking positions on specific credit instruments or indices.

The market for US CDSs is predominantly over-the-counter (OTC), meaning that trades
occur directly between market participants rather than on an exchange. However, regulatory
changes following the 2008 financial crisis have led to increased standardization and central
clearing of CDS contracts through central counterparties (CCPs). This shift aims to enhance
transparency, reduce counterparty risk, and improve overall market stability.

Key sectors within the US CDS market include corporate bonds, municipal bonds, and
sovereign debt. Corporate CDSs are the most actively traded, with investors seeking
protection against default risk associated with specific companies or industry sectors.
Municipal CDSs offer similar protection for debt issued by state and local governments,
while sovereign CDSs provide coverage for sovereign debt obligations.

The US CDS market has experienced periods of heightened volatility and regulatory scrutiny.
The financial crisis exposed weaknesses in the market, leading to reforms and increased
oversight by regulatory bodies such as the Securities and Exchange Commission (SEC) and
the Commodity Futures Trading Commission (CFTC). These efforts aim to improve
transparency, reduce systemic risk, and foster greater confidence in the market.

In recent years, technological advancements and the growth of electronic trading platforms
have also influenced the US CDS market. These developments have increased accessibility,
efficiency, and price transparency, benefiting market participants and contributing to overall
market liquidity.

Overall, the US CDS market remains a vital component of the country's financial
infrastructure, providing participants with tools to manage credit risk effectively. Ongoing
regulatory reforms and technological advancements continue to shape the market, ensuring its
resilience and adaptability in an evolving financial landscape.

What caused the US one-year CDS-spread spike of 2023?

That CDS spreads can also be influenced by interest rates raises the possibility that the 2023
spike in CDS spreads could partly be driven by rates and not credit. But through May 3,
prices of long-maturity Treasurys during 2023 were largely range-bound, and our analysis
indicated that the 146-basis-point spike in the one-year spread can be attributed almost
entirely to an increase in the probability of the U.S. government’s defaulting, as the exhibit
below shows.
Why CDS is needed?
Using CDS, one can protect against the fundamental credit risk of corporate bonds. The size
of the corporate bond market in India has increased by an 8x factor during the past ten years.
Compared to FY 2005, when issuances were INR 55,409 crores, they were INR 4,32,691
crores in FY 2015, with more than 60% of them falling into the AAA rated group. In effect
insuring the underlying credit risk, CDS can improve the market for corporate bonds by
freeing up cash for banks and other financial institutions. Because CDSs can increase bond
market investors' appetite for lower rated issuers beyond their traditional favorites in the
high-safety category, the development of a CDS market may result in a gradual deepening of
the corporate bond market.
The Role of Credit Derivatives
In an economy a broad variety of entities have a natural need to assume, reduce or manage
credit exposures. These include banks, hedge funds, brokerage firms, insurance companies,
fund managers, pension funds, corporations and government agencies.
Each type of player will have different economic or regulatory motives for wishing to take
positive or negative credit positions at particular times. Credit derivatives enable users to:
 hedge and/or mitigate credit exposure;
 transfer credit risk;
 generate leverage or yield enhancement;
 decompose and separate risks embedded in securities (such as in convertible bond
arbitrage);
 proactively manage credit risk on a portfolio basis;
 use as an alternative vehicle to equity derivatives for expressing a directional or volatility
view on a company; and
 manage regulatory capital ratios.
Conventional credit instruments (such as bonds or loans) do not offer the same degree of
structural flexibility or range of applications as credit derivatives. A fundamental structural
feature of credit derivatives is that they de-couple credit risk from funding. Thus players can
radically alter credit risk exposures without actually buying or selling bonds or loans in the
primary or secondary markets.

Credit Derivatives: Reasons to use by Banks

The most important factors of credit derivatives that motivate market participants to purchase
protection against credit riskier
 Credit-line management and
 Regulatory arbitrage Similarly, the factors that motivate market participants to sell
protection against credit risk are
 Funding arbitrage and
 Product restructuring
Potential benefit of CDS
Credit Default Swaps (CDS) provide an effective means to hedge and trade credit risk, thus
helping complete markets. Financial institutions can manage their exposures better, and
investors benefit from an enhanced investment universe. CDS spreads provide a market-
based assessment of credit conditions. By distributing risks across institutions, CDS
potentially reduce borrowing costs and increase credit supply for corporate and sovereign
debtors. CDS pricing is intimately related to the cost of funds on corporate borrowing and,
hence, provides a most liquid and transparent benchmark for pricing of new issuances (both
bonds and loans). The benefits of CDS are exemplified by the fact that during the years 2001
and 2002, when a high number of corporate bankruptcies threatened the stability of the
financial sector, CDS helped ease the strains put on the financial system by corporate failures
such as Enron and Swissair. Since then, the RBI has permitted banks to start using CDS to
hedge their banking and trading books, indicating that the necessary infrastructure is in place.
In December 2011, the first two CDS trades on the Indian market in INR took place,
involving the Rural Electrification Corporation and Indian Railway Finance Corporation,
each totalling Rs 5 crores. CDS help shift risks from those who hold highly concentrated
portfolios to those who benefit from taking on additional exposure, leading to improved risk
profiles. Credit risk transfer across institutions would use capital more efficiently as players
having excess capital can take up credit risks, allowing capital-scarce players to shed risk
leading to improvement is risk profiles. Since credit risk can be transferred, credit spreads
may narrow as illiquidity is no longer a significant risk.

RBI Control and Regulatory Mechanisms on CDS in India.

The following processes were put in place to safeguard the interests of market players and
also attempt to mitigate some of the drawbacks of CDS contracts:
1. Retail customers are only allowed to enter into CDS contracts in order to protect
themselves against the credit risk associated with the underlying debt instrument. Therefore,
the retail users shall not be allowed to enter into a CDS contract for the purpose of
speculating or wagering. The debt products must be accessible to regular investors.
Additionally, (a) the CDS contract's notional amount should not be greater than the debt
instruments' market value, and (b) the CDS contract's maturity date should not be later than
the debt instruments' maturity. Before they must terminate the CDS contract, the retail
customers are given a period of 1 (one) month from the day they stop having underlying
exposure.
2. Standardization of CDS contracts: This would make doing business easier for market
participants and offer terms that are based on global best practices, both of which will help to
draw new investors and lenders into the Indian CDS market. The Fixed Income Money
Market and Derivatives Association of India (FIMMDA) would also be obliged to create
trading standards and publish significant CDS contract details, such as the standard maturity
length, standard premium, upfront fee calculation, etc.
3. Non-Negotiable terms under the CDS Contract: The CDS contracts shall mandatorily
provide: (a) reference entity, reference obligation, and deliverable obligation(s); (b) credit
event definitions; and (c) the method and procedure of settlement.
4. Specific Exclusions under the CDS Contract: A CDS contract may not include any
provisions that (a) provide the Protection Seller the right to unilaterally terminate it, save in
the case that the Protection Buyer fails; (b) prevent the Protection Seller from paying the
Protection Buyer after the occurrence of a credit event and the fulfilment of other contract
requirements; or (c) give the Protection Seller any relief from liability.
5. Reporting Requirements for OTC CDS Transaction: The Clearing Corporation of India
Limited (CCIL) trade repository must receive all OTC CDS transaction reports from market
makers within 30 (thirty) minutes after the transaction. Additionally, Clause 8.6(ii) of the
Master Directions mandates that "market-makers shall disclose to the trade repository of
CCIL all unwinding, novation, settlement transactions, any credit, substitute, or succession
occurrence." The timetable for reporting the transactions listed in Clause 8.6(ii) has not,
however, been specified.
6. Reporting Requirements for Exchange-traded CDS Transaction: Exchanges must submit
all CDS transactions to the trade repository designated by the Reserve Bank at the end of
each business day, in the format and with the frequency specified by the Reserve Bank. This
report must contain the gross notional amount of protection that FPIs sold to CCIL.
7. The RBI may, after giving such person or agency a reasonable opportunity to respond, take
any legal or regulatory action against them for breaking the terms of the Master Directions or
any other applicable law, including banning them from trading in the credit derivatives
market for a maximum of one (1) month at a time. The penalty provision sounds reasonable
because it gives the RBI the authority to take action against violators, including barring them
from the derivative market, but it should have been restricted to these specific sections
because the phrase "any other applicable legislation" is quite broad and may not even have an
influence on or be related to derivative transactions.

Lessons to help the Indian banking industry use credit default swaps
Following are some lessons that must be taken from other active CDSs markets around the
world if the Indian banking sector is to adopt CDSs. First, as banks are doing in other parts of
the world, banks must comprehend the significance of incorporating CDSs into their risk
management strategy in order to hedge their credit risk (Shan et al., 2021). For example: The
largest CDS market in the world, for instance, is found in the USA and Europe. The
opportunity for Indian banks to enter the market and benefit from what CDSs have to offer
clients is now. As the largest market makers and consumers of CDSs, banks must be made
aware of both the advantages and disadvantages of dealing in CDSs, according to regulators
(González et al., 2012). They will therefore be more inclined to take an active role in the
market. Third, as CDS products are sold over-the-counter, regulators must keep track of CDS
transactions through a repository like the Central Clearing Corporations of India (CCIL) in
order to prevent trading fraud. Fourth, the Indian banking industry has to understand that
using CDSs to hedge credit risk is one option to escape a precarious financial scenario for
banks. There is proof of the same in both the American and European markets. Fifth, banks
must take advantage of chances to make money by offering risk management services as they
also sell CDSs. They will receive a substantial sum of money from this, which will be
included in their non-interest revenue.

METHODOLOGY:

 The required data for this study have been collected basically from secondary source.
The required data on various aspects collected from various Journals, Monthly Issues,
Articles, and different websites.
 This research study used a qualitative approach to investigate the topic of credit
default swaps (CDS) in India. Specifically, the study conducted interviews with five
experts in the field of CDS to gain insights into their experiences and perspectives on
this financial instrument. The following section describes the methods used to gather
and analyze data for this study.
 The following section describes the methods used to gather and analyze data for this
study.
Participants: The study involved a purposive sample of five participants who were
experts in the field of CDS in India. The participants were selected based on their
experience and expertise in the subject matter, and their willingness to participate in
the study.
Data Collection: The data for this study was collected through semi-structured
interviews with the five participants. The interviews were conducted in person or over
the phone and lasted between 30 and 60 minutes.
Data Analysis: The data from the interviews was analyzed using a thematic analysis
approach.
DATA ANALYSIS
The responses suggest that CDS play a crucial role in India's financial system, providing an
effective means to hedge and trade credit risk, and potentially reducing borrowing costs and
increasing credit supply for corporate and sovereign debtors. CDS have the potential to
enhance risk distribution, use capital more efficiently, and provide a liquid and transparent
benchmark for pricing new issuances. However, there are some challenges in implementing
CDS in India, such as regulatory restrictions and the lack of incentives for market players.
Nonetheless, CDS can contribute to the stability of India's financial system by shifting risks
and potentially easing strains put on the financial system by corporate failures.

LIMITATIONS OF THE STUDY

The researcher has made every effort to gather the required information. Methods that were
suitable and appropriate were used to evaluate the data. Despite sincere efforts, the research
does have some limitations, which the researcher has modestly acknowledged. The following
is a list of the research's observed limitations:
 The corporate bond market served as the setting for the research. Credit risk is a
significant factor in the markets for corporate bonds, which explains why. However,
this does not imply that credit risk and credit derivatives do not apply to sovereign
bonds. They were, however, disregarded.
 This study deals with Credit Derivatives in India. However, there was no activity in
this market as of June 2013. As a result, the majority of findings from studies
conducted in advanced economies are drawn. It is important to note that the
underlying bond markets are distinctively different in this case.
 In India, credit derivatives have struggled to gain traction. Thus, a more thorough
study of the trading tactics unique to India was not possible.
 The researcher really spoke with the individual who completed the lone credit
derivative deal and took his opinions into consideration.
 Data is based on respondents' levels of agreement, which may not produce precise
findings because respondents' opinions can change over time.
 Data collected from the internet is assumed to be true and correct but cannot be
verified for its correctness.
 The secondary support data predominantly includes the data published in various
newspapers and journals.

REFERENCES
Baral, P. K. (2015). Credit derivatives for hedging credit risk: an Indian
perspective. IJAR, 1(12), 344-352.
Duffee, G. R., & Zhou, C. (2001). Credit derivatives in banking: Useful tools for managing
risk?. Journal of Monetary Economics, 48(1), 25-54.
González, O.L., Gil, L.I.R., Lopez, S.F. and Búa, M.M.V. (2012), “Determinants of credit risk
derivatives use by the European banking industry”, Journal of Money, Investment and
Banking, No. 25, pp. 36-58.
Guru, A. (2010), “Macroeconomics and finance in emerging market economies credit
derivatives: international developments and lessons for India”, Macroeconomics and Finance
in Emerging Market Economies, Vol. 0843 Nos 3:1, pp. 147-155, doi:
10.1080/17520840903498263.
Huang, A. Y., & Hu, W. C. (2012). Regime switching dynamics in credit default swaps:
Evidence from smooth transition autoregressive model. Physica A: Statistical Mechanics and
its Applications, 391(4), 1497-1508.
Shan, C., Tang, D.Y., Yan, H. and Zhou, X. (2021), “Credit default swaps and bank regulatory
capital”, Review of Finance, Vol. 25 No. 1, pp. 121-152.
Subrahmanyam, M. G., Tang, D. Y., & Wang, S. Q. (2014). Does the tail wag the dog?: The
effect of credit default swaps on credit risk. The Review of Financial Studies, 27(10), 2927-
2960.
https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12226
https://www.msci.com/www/blog-posts/the-cds-market-s-view-on-us/03820087801