Co-op banks to short-sell govt bonds on intra-day basis

Central bank lays down three conditions for urban co-operative banks to undertake these transactions

The Reserve Bank of India (RBI) permitted urban cooperative banks to undertake short selling of government bonds on an intra-day basis. According to government bond dealers, the move will not have much of an impact because urban cooperative banks form a very small portion of the market.

“ It has been decided to permit well-managed urban cooperative banks, who are members of negotiated dealing system-order matching (NDS-OM) and have regular concurrent audit of their treasury operations, to undertake intra-day short selling of government securities,” said RBI in a notification on Wednesday.

RBI has laid down three conditions for urban cooperative banks to undertake these transactions. According to RBI, the urban cooperative bank should have an NDS-OM membership, a net worth of Rs  25 crore, capital-to-risk weighted assets ratio (CRAR) of nine per cent or more and net non-performing assets of not more than three per cent. Besides, banks should have followed sound risk management practices and mandatory concurrent audit of their treasury operations, RBI said.