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Traders in India's derivative market expect an increase in the transaction limit for foreign investors in overnight index swaps (OIS), which four treasury officials said could come as part of the central bank's monetary policy review on Thursday.

As of Aug. 6, foreign investors have already used 96% of the current 3.5 billion Indian rupees ($41.70 million) limit available to them.

"Various representations have been made (to the RBI) as the utilisation has remained at elevated levels for a fairly long time," a treasury head with a foreign bank said.

There has been no formal industry-level approach but bank treasury officials, in their regular meetings with the RBI, have suggested raising the limit to 4.50 billion rupees or doing away with it completely.

The RBI did not immediately reply to a Reuters email seeking comment. The officials declined to be named as they are not allowed to speak to the media.

OIS markets reflect expectations on interest rate moves and investors use it to hedge investment risks. However, foreigners, have a limit on the price value of a basis point (PVBP) of their outstanding positions, other than those for hedging rate risks.

PVBP is the change in price of an instrument if the yield changes by one basis point.

The activity in the swap market has jumped since last September when JPMorgan said it would include Indian bonds in its emerging market debt index.

Until that announcement, limits worth 617 million rupees, or 18%, were unutilised. Since then, the cap is nearly reached and if not raised, it could push activity offshore, traders said.

Offshore or ND-OIS are swap trades that take place outside India and there is no delivery involved.

"The OIS limit for foreign investors is near exhaustion, and we could expect some relaxation, as it would help to increase activity in swaps," said Alok Singh, group head of treasury at CSB Bank.

($1 = 83.9270 Indian rupees)