The Reserve Bank of India (RBI) has revised the existing guidelines for the use of Subsidiary General Ledger (SGL) account facility with immediate effect.

Accordingly, in the event of bouncing of SGL transfer forms and the failure of the account holder concerned to offer satisfactory explanation for such bouncing, the account holder would be liable to pay penalties.

RBI has prescribed graded monetary penalties for such SGL bouncing, subject to a maximum penalty of Rs5 lakh per instance.

Under the revised guidelines, the applicable monetary penalty on Rs5 crore default will be 0.10 per cent or 10 paise per Rs100 face value for the first three defaults in a financial year (April to March) with a maximum penal amount of Rs50,000;

For the next three defaults in the same financial year - 0.25 per cent or 25 paise per Rs100 face value with a maximum penal amount of Rs1,25,000;

For the next three defaults in the same financial year - 0.50 per cent or 50 paise per Rs100 face value with a maximum penal amount of Rs2,50,000;
 
On the tenth default in a financial year, the eligible entities will be debarred from using the SGL accounts for undertaking short sales in government securities during the remaining portion of the financial year.

In the next financial year, upon being satisfied that the account holder in question has effected improvements in its internal control systems, RBI may grant specific approval for undertaking short sales by using the SGL account facility.

The monetary penalty may be paid by the account holder concerned by way of a cheque or through electronic mode for the amount favouring the Reserve Bank of India, within five working days of receipt of intimation of order imposing penalty from RBI.

'SGL bouncing' means the failure of settlement of a government securities transaction on account of insufficiency of funds in the current account of the buyer or insufficiency of securities in the SGL/CSGL account of the seller, maintained with the Reserve Bank of India.

The defaulting member should make appropriate disclosure on the number of instances of default as well as the quantum of penalty paid to the RBI during the financial year, under the "Notes to Account" in its balance sheet.

The RBI said it reserved the right to take any other action, including temporary or permanent debarment of the SGL account holder, in accordance with the powers conferred under the Act as it may deem fit, for violation of the terms and conditions of the opening and maintenance of SGL/CSGL accounts or breach of the operational guidelines issued from time to time.

In addition to the above, as NDS members they should strictly abide by all other provisions of the NDS (Membership) Regulations, 2002 as amended from time to time, RBI said in its notification.

Under existing regulatory framework, if the SGL transfer form bounces three times in a half year, for want of either funds or the securities, the account holder is liable to be debarred from using the SGL account facility for a period of six months. After restoration of the facility, if the SGL transfer form of the account holder bounces again, such account holder is liable to be permanently debarred from using its SGL account.

SGL account or 'Subsidiary General Ledger' account is a facility provided by RBI to large banks and financial institutions as also entities like NSGL and PF trusts to hold their investments in government securities and treasury bills in the electronic book-entry form. Such institutions can settle their trades for securities held in SGL through a delivery-versus-payments (DVP) mechanism which ensures movement of funds and securities simultaneously.