Context: RBI has issued guidelines for lending and borrowing in Government securities. This move is expected to add depth and liquidity to Government Securities market aiding in better price discovery for Government securities.
Salient Features of Framework for Lending & Borrowing of G-Secs
- Government Securities Lending Transaction (GSL-Transaction):
- Refers to dealing in Government securities involving lending of eligible Government securities for a fee, by the owner of those securities (lender) to a borrower, on the collateral of other Government securities.
- The GSL Transaction should be for a specified period of time with an agreement that the borrower shall return to the lender the security and lender shall return the securities received as collateral to the borrower at the end of the agreed period.
- Government Security Lending Fee is the feed paid by the borrower to the lender of Government Security as mutually agreed between them for undertaking the transaction. (RBI will not mandate the fee).
- Eligible securities for lending/borrowing:
- All Government Securities issued by the Central Government (excluding Treasury Bills) would be eligible for lending/borrowing under a Government Security Lending (GSL) transaction.
- Securities obtained under a repo transaction, including through RBI's Liquidity Adjustment Facility or borrowed under another GSL transaction will also be eligible for lending under GSL transaction.
- Collateral for lending/borrowing:
- G-Secs issued by Central Government (including Treasury Bills) and State Government Bonds would be eligible for placing as collateral under a GSL transaction.
- Also securities obtained under a repo transaction, including through RBI's Liquidity Adjustment Facility, or borrowed under another GSL transaction are also eligible to be placed under a GSL transaction.
- Eligible participants:
- Eligible entities for lending of securities for GSL Transaction:
- Eligible entities for borrowing of securities for GSL Transaction: Scheduled Commercial Banks, Primary Dealers, Urban Cooperative Banks.
- Pricing of securities/collateral: In a GSL transaction, the securities should be lent (placed as collateral) in the first leg at market related prices and received in the second leg at the same prices. The second leg would involve a consideration amount viz. the GSL fee to be paid by the borrower to the lender of the security.
- Computation of Statutory Liquidity Ratio (SLR)
- SLR eligible securities borrowed under a GSL Transaction to counted as SLR by the borrower. Such securities lent under a GSL transaction to be not accounted for SLR by the lender. (Similarly for the collateral).
- Maturity of GSL Transactions: Minimum tenor of a GSL transaction shall be one day and maximum tenor shall be maximum tenor shall be maximum period prescribed to cover short sells.
- Lending/borrowing process:
- GSL Transactions may be contracted using any mutually agreed process/platform, including but not limited to, bilateral or multilateral, quote driven or order driven process, anonymous or otherwise.
- Settlement of all GSL Transactions will be on a Delivery versus Delivery basis and shall settle through Clearing Corporation of India limited or any other central counterparty or clearing arrangement approved by RBI.