Repo in Corporate Bonds

Money Market Operations as on 13th June
Reserve Bank of India - Press Releases

IV. Repo in Corporate Bond- Repo in Corporate Bond in Overnight Segment refers to borrowing against the above eligible debt securities only for one day.

The Second Quarter Review of the Annual Policy Statement for 2009-10, RBI referred to the introduction of repo in corporate bonds.

Repurchase Transactions (Repo) (Reserve Bank) Directions, 2018
Reserve Bank of India - Notifications

On January8, 2010, RBI decided to introduce repo in corporate bonds. In this regard, the Reserve Bank of India has issued a direction IDMD.DOD.04/11.08.38/2009-10 dated January 08, 2010 under section 45W of the RBI Act, 1934

As per RBI’s above direction, Corporate debt security means non-convertible debt securities, which create or acknowledge indebtedness, including debentures, bonds and such other securities of a company or a body corporate constituted by or under a Central or State Act, whether constituting a charge on the assets of the company or body corporate or not,

Corporate debts do not include any debt issued by Government or such other persons as may be specified by the Reserve Bank, security receipts and securitized debt instruments”

Eligible securities for repo in Corporate Debt Securities:
Listed corporate debt securities of original maturity of more than one year which are rated ‘AA’ or above by the rating agencies registered with the Securities and Exchange Board of India (SEBI), that are held in the security account of the repo seller, in demat form.

Commercial Papers (CPs), Certificates of Deposit (CDs) and Non-Convertible Debentures (NCDs) of original maturity upto one year which are rated A2 or above by the rating agencies registered with SEBI.

Bonds which are rated ‘AA’ or above, by the rating agencies registered with SEBI or internationally recognised rating agencies, and which are issued by multilateral financial institutions like the World Bank Group (e.g., IBRD, IFC), the Asian Development Bank or the African Development Bank and other such entities as may be notified by the Reserve Bank of India from time to time.

Hence, only listed corporate debt securities which are rated ‘AA’ or above by the rating agencies, that are held in the security account of the repo seller, in demat form, shall be eligible.

All CPs, CDs and other instruments including NCDs of less than one year of original maturity, shall not be eligible securities for undertaking repo in corporate bonds.

Borrowings by a bank through repo in corporate bonds and debentures shall be reckoned as liabilities for Cash Reserve Ratio/ Statutory Liquidity Ratio requirement and, to the extent these liabilities are to the banking system, they shall be netted as per section 42(1) of the RBI Act, 1934.

As on June 12, 2019, the volume of repo transactions in corporate bond for a tenor of one day was Rs 7.75 billion or Rs 775 crores at a weighted average rate of 6.12%. Range for interest rate was 6-6.45%.

General Directions for Repo Transactions:

Related Posts:
Section 1 - MONEY MARKETS - Daily Money Market Operations