RBI allows STRIPS trading for state government bonds to boost liquidity

India's central bank has allowed a special trading facility for state government securities, expanding a framework already available for central government bonds, it said in a circular on Thursday. 

The move enables Separate Trading of Registered Interest and Principal of Securities (STRIPS) for state-issued fixed-coupon bonds, provided they have a residual maturity of up to 14 years and an outstanding amount of at least 10 billion rupees ($116.93 million), the Reserve Bank of India said in a release. 

Such securities must also be eligible for meeting banks' statutory liquidity ratio requirements. 

STRIPS allow dealers to sell principal and interest payments independently, enhancing liquidity in the state government securities market by enabling distinct trading of these components. 

This step follows consultations with individual state governments and feedback from market participants, the RBI said.

The guidelines align with those in place for central government securities and come into immediate effect, it added.