Repo deals with corporate bonds as collateral from March

In a step that will help improve liquidity in corporate bonds, Reserve Bank of India has allowed to keep non-convertible debentures (bonds) as security to borrow from the money market from March 01, 2010.

Only listed bonds which are rated “AA” and above and have original maturity of at least one year can be used collateral in the repo market, RBI said in a notification.

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

“Instead of lying idle investment book in the absence of active sport market, now corporate debt could be used as collateral to borrow funds from repo market”, a head of dealer with public sector bond house.

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

Amount borrowed by bank through repo will be considered as part of demand and time liabilities for computing Cash Reserve Ratio (CRR) and Statutory Liabilities (SLR).

All repo deals have to be reported within 15 minutes of striking transactions to Fixed Income Money Market and Derivatives Association of India.