RBI releases draft note on tri-party repo on govt securities, corporate bonds
Tri-party repo will enable market participants to use underlying collateral more efficiently and facilitate development of the term repo market in India, says RBI draft paper
Mumbai: The Reserve Bank of India (RBI) has released a draft paper on tri-party repo on government securities and corporate bonds. Tri-party repo is a type of repo transaction where a third entity called Tri-party Agent will act as an intermediary. This agent will facilitate services like collateral selection, payment and settlement, custody and management. Typically, a repo transaction happens between two entities where the borrower raises funds by selling securities with the promise to repurchase the securities on a mutually agreed future date at an agreed price.
“Tri-party repo will enable market participants to use underlying collateral more efficiently and facilitate development of the term repo market in India,” RBI said in the draft paper.
The paper highlights that all entities with a minimum net owned fund of Rs25 crore and having regulatory approval will be eligible to act as a tri-party agent. This includes banks, depositories and other entities. According to the RBI, participants will have to enter into a separate agreement with these agents for every repo transaction.
“The tenor, settlement mechanism, minimum haircut, and disclosure requirements for tri-party repos will be identical to those applicable to normal repos,” the paper said.
Introduction of tripartite repo was part of the recommendations of the H.R. Khan committee report on development of corporate bond market. The committee had noted that these measures could pave the way for finally allowing corporate bonds for liquidity adjustment facility (LAF) operations.