Tokyo: The International Swaps and Derivatives Association Inc. (Isda) will “press" for India’s central bank to remove a requirement that rupee-denominated credit-default swaps must be tied to debt that has a credit rating.

“We don’t think it should be a requirement even for the bond area, let alone the loan area," Robert Pickel, chief executive officer of Isda, told reporters on Thursday at a conference in Tokyo. “We will continue to press that concern if it’s not addressed in some way." Under the revised central bank draft rules released on Wednesday, assets and obligations underlying credit-default swaps must carry a current credit rating. The requirement may constrain growth in India’s credit-default swap market before it starts.

Pressing matter: Robert Pickel.

Default swaps, used to protect buyers of debt against the risk of a default, help banks manage risks better and are “essential" for the long-term financial health of lenders, the central bank said in a statement.

Indian loans typically don’t carry a rating and the market is as much as six times larger than the amount of corporate bonds in existence, according to Bloomberg calculations based on central bank data. Outstanding company bonds were about Rs2 trillion as of March 2006, according to Citigroup Inc.

The Reserve Bank of India, the central bank, currently allows trading in credit derivatives such as asset-backed securities or bonds secured by automobile and home loans. It is seeking comments from investors on the revised rules to allow banks and primary dealers to trade credit-default swaps for the first time without the need to hold the underlying securities.

Credit-default swaps, financial instruments based on bonds or loans, were conceived to protect bondholders by paying the buyer face value in exchange for the underlying securities should the borrower default.

A decrease in the price indicates improving investor perceptions of credit quality and an increase suggests deterioration.

Derivatives are agreements whose value is derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in the weather or interest rates.