India’s insurance and banking regulators are maintaining their reservations about allowing regulated entities to participate in the commodity derivatives market, indicating that insurers are unlikely to gain access to this asset class in the near term. Reserve Bank of India (RBI) and Insurance Regulatory and Development Authority of India (IRDAI) officials “are not in favour” of opening commodity derivatives to banks and insurance companies at this stage, according to Securities and Exchange Board of India (Sebi) chairperson Tuhin Kanta Pandey, as reported by Business Standard.
Pandey, speaking on May 4, 2026, on the sidelines of the IMC Capital Markets Conference at the National Stock Exchange, said the two regulators had explained the basis for their position and linked it to the duration characteristics of their supervised entities. “They had their rationale that at this moment, they do not feel it is the right time because these are long term – the insurance is long term – so how will the commodity derivatives help,” Pandey said, as reported by Business Standard. He added that Sebi’s engagement with the other regulators had not led to agreement on expanding access. The market regulator “did not get a positive response” on the issue, he said, referring to “certain concerns” raised by the banking and insurance supervisors. For insurers looking at new options for asset-liability management, hedging, or portfolio diversification, the remarks suggest that commodity derivatives will remain outside the permissible investment universe for now, despite periodic industry interest in broader derivatives usage.
The current stance comes against the backdrop of Sebi’s earlier work on institutional involvement in the commodity segment. In September 2025, Reuters reported that Pandey had said the markets regulator would work with the government to enable banks and pension funds to trade commodities as part of its agenda for the commodity markets. At that time, Sebi was also examining whether to allow foreign portfolio investors to trade in non-cash-settled, non-agricultural derivatives contracts. Those proposals were presented as changes that would affect liquidity levels and price formation in the commodity space. The present positions taken by RBI and IRDAI indicate that cross-regulatory alignment is still a work in progress, particularly for entities with long-term liabilities such as life insurers and pension funds.
Separately, Pandey pointed to operational and tax-related challenges in the commodity derivatives ecosystem, especially in relation to physically settled contracts and the way Goods and Services Tax (GST) applies across states. He said Sebi has submitted proposals to the government focused on identified problem areas, including the requirement for multiple State GST registrations when delivery takes place from warehouses in different locations.
“We have proposed that there could be an Integrated GST mechanism instead of the State GST. For delivery, the warehousing could be located in various places due to which they may have to take registration from all the states for the purpose of delivery. It is really cumbersome,” Pandey said, as reported by Business Standard. Because commodity contracts can involve physical delivery from warehouses located in several states, participants face layered tax compliance and registration obligations. Market observers have argued that an Integrated GST approach could alter these processes and reduce some of the administrative burden for traders and hedgers, and potentially for institutions if their participation is permitted later.
Pandey also addressed technology-related risks, including those associated with advanced artificial intelligence models and digital platforms used in financial markets. He said Sebi is monitoring the challenges that Mythos and similar AI models pose and how they may affect market functioning and operational resilience. The regulator is in discussions with market participants and other stakeholders and is preparing formal communication. “Sebi will soon issue an initial advisory on risks emanating from such models and AI-led vulnerability detection tools,” Pandey said.
Pandey noted that vulnerabilities can spread quickly in an interconnected securities market and called attention to the importance of monitoring and controls. A “single weak link can create wider risks,” he said, emphasising the need for regulated entities to maintain cyber resilience and ongoing surveillance of their systems. “Algorithms may move faster than human controls. Digital platforms may become channels for fraud. This is especially relevant as next-generation AI models become more powerful. While these tools can help identify weaknesses faster, they can also exploit vulnerabilities at speed and scale,” he added. For insurers, which are adopting AI in underwriting, claims handling, pricing, and distribution, the comments point to closer scrutiny of model risk, technology governance, and third-party technology arrangements, in coordination with both securities and insurance regulators.
On customer due diligence, Pandey said work continues on CKYC 2.0, which is intended to create a single know-your-customer layer for the financial system. “The CKYC 2.0 is now under preparation. The CERSAI is doing it and we are all contributing to it,” he said, referring to the Central Registry of Securitisation Asset Reconstruction and Security Interest of India. “We had a meeting last week with CERSAI for identifying all the different points which need to be addressed. We may have something by end-July," he said. He also cited the need to address “lack of clarity on authentication of data in the pool.”
