RBI to issue guidelines for allowing repos in corporate bonds
12 Sep 2009
The Reserve Bank of India will soon place draft guidelines for allowing repos in corporate bonds on its website for wider dissemination and comments, RBI deputy governor Usha Torat said.
The RBI, however, has already set out pre-conditions for allowing repos in corporate bonds, viz, an efficient and safe settlement system based on `delivery versus payment' (DvP) and availability of fair prices, she said. The permission to the clearing houses of the exchanges to open a transitory pooling account with the RBI is the first step taken to provide an environment for an efficient and safe settlement system, Torat added.
A repo transaction involves the pledging of bonds by a market participant against funds at market-determined rates for a specific period.
Currently, repo transactions are permitted only in central government bonds, treasury bills and state government loans.
Torat said issuance of long-term bonds by banks with special incentives for investors is another suggestion that is made for addressing the problem of asset liability mismatch. "While this is being examined, it needs to be mentioned that the recent introduction of the 10 year future on the exchanges can perhaps help in developing products to mitigate the interest rate risk for infrastructure projects," she added.
