RBI revises repo accounting norms for banks

The Reserve Bank of India (RBI) today issued revised guidelines on uniform accounting for repo /reverse repo transactions, making it mandatory for such transaction to be included in the accounts of the participant banks.

The new guidelines replace the guidelines issued in March 2003, which treated 'repo' as a combination of two independent sale/purchase transactions as per the legal provisions prevailing then.

The accounting norms now propose 'repo' as a collateralised lending/ borrowing transaction that is structured as a legal sale / purchase of securities as recognised by the RBI (Amendment) Act, 2006. Accordingly, such transactions would find a place on the balance sheet of the repo participants, thus enhancing transparency.

The revised accounting guidelines will apply to market repo transactions in government securities and corporate debt securities.  These accounting norms would, however, not apply to repo / reverse repo transactions conducted under the Liquidity Adjustment Facility (LAF) with the RBI.

The securities sold under repo would continue to be reflected in the investment account of the repo seller and would be subject to the usual mark to market valuation discipline. Accordingly, the repo buyer would not reflect the securities acquired under repo in his investment account.

The movement of securities should be accounted for in the books of the counterparties by showing it as contra entries for the sake of greater transparency.