On 27-12-2023, the Reserve Bank of India (‘RBI’) notified the RBI (Government Securities Lending) Directions, 2023 applicable to all Government securities lending transactions, undertaken in Over-the-Counter markets. The provisions came into force on 27-12-2023.
Key Points:
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Eligible Securities- Government securities issued by the Central Government:
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For the purpose of lending/ borrowing under the Government Securities Lending Transactions (‘GSL transaction’):
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Government Securities excluding Treasury Bills;
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Securities obtained under a repo transaction (including through Reserve Bank’s Liquidity Adjustment Facility);
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borrowed under another GSL transaction.
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For placing as collateral under a GSL transaction:
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Government Securities including Treasury Bills;
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Securities obtained under a repo transaction (including through Reserve Bank’s Liquidity Adjustment Facility);
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borrowed under another GSL transaction.
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Tenor- minimum tenor of a GSL transaction will be one day and maximum tenor will be 3 months.
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Settlement of Trades of GSL transactions will settle on:
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A Delivery versus Delivery basis.
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First leg of GSL Transactions will settle on a T+0 or T+1 basis.
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Such transactions will settle through Clearing Corporation of India Ltd. or any other central counterparty or clearing arrangement approved by the RBI.
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Use of Security borrowed and substitution of collateral:
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Securities borrowed under a GSL transaction can be:
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Sold either through an outright or a repo transaction or used for meeting a delivery obligation in a short sale; or
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Used for availing Reserve Bank’s Liquidity Adjustment Facility; or
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Lent under another GSL transaction; or
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Placed as collateral under another GSL transaction.
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Securities placed as collateral can be substituted by the borrower with other eligible securities in terms of the rules of the central counterparty.
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The RBI can publish any anonymized data released to GSL transactions.
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In case of violation of Directions, the RBI, along with taking penal or regulatory action, can disallow the person/ agency from dealing in GSL transactions for a period not exceeding 1 month at a time.