What changed
SDLs are now accepted as eligible securities under LAF Repos, effective April 3, 2007. A 10% margin applies to SDLs, while G-Secs/T-bills retain a 5% margin. The PDO-NDS system now allows members to transfer securities between SGL and RC SGL accounts without faxing physical SGL forms, and sends alerts for insufficient RC SGL balances with a 15-minute replenishment deadline.
What it means for you
Banks and Primary Dealers gain additional liquidity management flexibility by using SDLs as collateral for LAF Repos, potentially easing funding constraints. The higher margin (10% vs 5%) for SDLs reflects their slightly higher risk compared to central government securities. The automated alerts and 15-minute replenishment rule tighten operational discipline, reducing settlement failures.
What you must do
- Update your LAF Repo bidding process to include SDLs as eligible collateral, applying the 10% margin.
- Ensure your PDO-NDS system is configured to handle SDL transfers between SGL and RC SGL accounts without manual SGL forms.
- Train treasury staff to respond to RC SGL shortfall alerts within 15 minutes of bid close to avoid bid rejection.
- Review your collateral inventory to optimize the mix of G-Secs/T-bills (5% margin) and SDLs (10% margin) for LAF operations.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Primary Dealers, Treasury departments managing LAF operations, PDO-NDS system users
What is the margin requirement for SDLs under LAF Repos?
A 10% margin applies to SDLs, meaning a repo bid of Rs.100 requires Rs.110 face value of SDLs. For G-Secs/T-bills, the margin is 5%.
What happens if my RC SGL account has insufficient securities for a repo bid?
You will receive an alert on PDO-NDS. You must replenish the shortfall within 15 minutes of bid close time, or your bids will be rejected.
Do I still need to fax SGL forms for RC transfers?
No. From April 3, 2007, you can transfer securities between SGL and RC SGL accounts directly via the LAF module's Transfer Order Booking functionality without faxing physical forms to PAD.