RBI Notifies Government Securities Lending Directions, 2023 | Permits Lending & Borrowing in Govt. Securities

Circular No. RBI/2023-24/97 FMRD.DIRD.No.05/14.03.061/2023-2024, Dated 27.12.2023

Earlier, the RBI vide Statement on Developmental and Regulatory Policies dated 08.02.2023 notified about the introduction of Securities Lending and Borrowing in Government Securities. Later, the RBI introduced draft directions on Government Securities Lending (GSL) & same was kept open for public comments. Based on the comments received, RBI has finalised the Directions.

The entities eligible to participate in GSL transactions as lenders of securities is entity eligible to undertake repo transactions in Government securities in terms of the Repurchase Transactions (Repo) (Reserve Bank) Directions, 2018 dated July 24, 2018 and any other entity approved by the Reserve Bank for this purpose.

Further, the Government securities issued by the Central Government excluding Treasury Bills shall be eligible for lending/borrowing under a GSL transaction. Securities obtained under a repo transaction, including through Reserve Bank’s Liquidity Adjustment Facility, or borrowed under another GSL transaction shall also be eligible to be lent under a GSL transaction.

Whereas, the Government securities issued by the Central Government (including Treasury Bills) and the State Governments shall be eligible for placing as collateral under a GSL transaction.

The minimum tenor of a GSL transaction shall be one day and the maximum tenor shall be the maximum period prescribed to cover short sales in terms of the Directions on ‘Secondary Market Transactions in Government Securities – Short Selling’ dated July 25, 2018.

Further, the GSL transactions may be contracted using any mutually agreed trading process/platform, including but not limited to, bilateral or multilateral, quote driven or order driven process, anonymous or otherwise.

All GSL transactions shall settle on a Delivery versus Delivery basis. The first leg of all GSL transactions shall settle either on a T+0 or T+1 basis. Further, all GSL transactions shall settle through Clearing Corporation of India Ltd. (CCIL) or any other central counterparty or clearing arrangement approved by the Reserve Bank for the purpose.

Also, the Securities/collateral under a GSL transaction shall be valued transparently at prevailing market prices in the first leg of the transaction. Whereas, the Haircut/ margins relating to GSL transactions shall be decided by the central counterparty settling the transactions.

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