RBI notifies RBI (Government Securities Lending) Directions, 2023 enabling lending and borrowing of Government Securities

On 27-12-2023, the Reserve Bank of India (‘RBI’) notified the RBI (Government Securities Lending) Directions, 2023 applicable to all Government securities lending transactions, undertaken in Over-the-Counter markets. The provisions came into force on 27-12-2023.

Key Points:

1. Eligible Securities- Government securities issued by the Central Government:

   • For the purpose of lending/ borrowing under the Government Securities Lending Transactions (‘GSL transaction’):

     • Government Securities excluding Treasury Bills;

     • Securities obtained under a repo transaction (including through Reserve Bank’s Liquidity Adjustment Facility);

     • borrowed under another GSL transaction.

   • For placing as collateral under a GSL transaction:

     • Government Securities including Treasury Bills;

     • Securities obtained under a repo transaction (including through Reserve Bank’s Liquidity Adjustment Facility);

     • borrowed under another GSL transaction.

2. Tenor- minimum tenor of a GSL transaction will be one day and maximum tenor will be 3 months.

3. Settlement of Trades of GSL transactions will settle on:

   • A Delivery versus Delivery basis.

   • First leg of GSL Transactions will settle on a T+0 or T+1 basis.

   • Such transactions will settle through Clearing Corporation of India Ltd. or any other central counterparty or clearing arrangement approved by the RBI.

4. Use of Security borrowed and substitution of collateral:

   • Securities borrowed under a GSL transaction can be:

     • Sold either through an outright or a repo transaction or used for meeting a delivery obligation in a short sale; or

     • Used for availing Reserve Bank’s Liquidity Adjustment Facility; or

     • Lent under another GSL transaction; or

     • Placed as collateral under another GSL transaction.

   • Securities placed as collateral can be substituted by the borrower with other eligible securities in terms of the rules of the central counterparty.

5. The RBI can publish any anonymized data released to GSL transactions.

6. In case of violation of Directions, the RBI, along with taking penal or regulatory action, can disallow the person/ agency from dealing in GSL transactions for a period not exceeding 1 month at a time.