RBI steps in to add liquidity to corporate bonds

In an effort to clear hurdles to starting a repo market for corporate bonds, the Reserve Bank of India (RBI) today said the market participants should report repo trades in corporate bonds to clearing corporations for settlement.

This arrangement to report deals to National Securities Clearing Corporation of India and Indian Clearing Corporation will remain in place until the Fixed-Income Money Market and Derivatives Association launches a reporting platform.

The launch date would be notified once the system became ready, RBI said in a statement.

The reverse purchase transaction in corporate bonds can be for a minimum of one day to a maximum of one year. These deals can be done in the Over The Counter (OTC) market.

RBI said the participants should report repo trades within 15 minutes of it taking place on the reporting platform and also report it to the clearing corporations of the exchanges.

This step will help improve liquidity in corporate bonds. RBI has allowed players to keep non-convertible debentures (bonds) as security to borrow from the money market from March 1.

Only listed bonds, which were rated AA and above and with an original maturity of at least one year, could be used as collateral in the repo market, RBI said in a notification.

Instead of lying idle in investment books due to the absence of an active spot market, now corporate debt could be used as collateral to borrow funds from the repo market.

Scheduled commercial banks, excluding regional rural banks and local area banks, primary dealers, RBI-registered non banking finance companies and pan-India finance institutions will be are eligible for repo deals.

The amount borrowed by banks through repo will be considered as part of demand and time liabilities for computing the cash reserve ratio and the statutory liquidity ratio.