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In a move that will add depth and liquidity to the government securities (G-Secs) market, the RBI has permitted permit lending and borrowing of G-Secs.
This move comes even as India is set to be included in the globally tracked JP Morgan’s Government Bond Index-Emerging Markets (GBI-EM) index, starting June 28, 2024.
The RBI said G-Secs issued by the Central government excluding Treasury Bills will be eligible for lending/borrowing under a Government Security Lending (GSL) transaction.
Securities obtained under a repo transaction, including through Reserve Bank’s Liquidity Adjustment Facility, or borrowed under another GSL transaction will also be eligible to be lent under a GSL transaction.
Collateral placement
Further, G-Secs issued by the Central Government (including Treasury Bills) and the State Governments will be eligible for placing as collateral under a GSL transaction.
In addition, Securities obtained under a repo transaction, including through Reserve Bank’s Liquidity Adjustment Facility, or borrowed under another GSL transaction will also be eligible to be placed as collateral under a GSL transaction.
GSL transactions may be contracted using any mutually agreed trading process/platform, including but not limited to, bilateral or multilateral, quote driven or order driven process, anonymous or otherwise, RBI said in its “Reserve Bank of India (Government Securities Lending) Directions, 2023”.
RBI Governor Shaktikanta Das, in his February 2023 “Statement on Developmental and Regulatory Policies” had said that RBI proposes to permit lending and borrowing of Government securities which will augment the existing market for ‘special repos’.
“A well-functioning market for securities lending and borrowing will add depth and liquidity to the Government securities market, aiding efficient price discovery.
“... The system is expected to facilitate wider participation in the securities lending market by providing investors an avenue to deploy idle securities and enhance portfolio returns,” Das then said.
The minimum tenor of a GSL transaction will be one day and the maximum tenor shall be the maximum period prescribed to cover short sales. All GSL transactions will settle on a Delivery versus Delivery basis.
The central bank said SLR (statutory liquidity ratio) eligible securities borrowed under a GSL transaction will be eligible to be reckoned for SLR by the borrower.
Accordingly, such securities lent under a GSL transaction will not be eligible to be reckoned for SLR by the lender.
Further, SLR eligible securities received as collateral under a GSL transaction will be eligible to be reckoned for SLR by the lender.
Accordingly, such securities placed as collateral under a GSL transaction will not be eligible to be reckoned for SLR by the borrower.
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