What changed
RBI allowed repo transactions in corporate debt securities for the first time, effective March 1, 2010. The move followed the Second Quarter Review of the Annual Policy Statement for 2009-10. Eligible securities are limited to listed corporate bonds rated AA or above, held in demat form, excluding short-term instruments like CPs, CDs, and NCDs under one year.
What it means for you
Banks and other eligible entities can now use corporate bonds as collateral for repo, improving liquidity in the corporate bond market. This gives lenders a new tool for short-term funding and portfolio management. However, the AA rating floor and demat requirement restrict the pool of eligible securities, so not all corporate bonds qualify.
What you must do
- Ensure corporate debt securities used for repo are listed, rated AA or above, and held in demat form.
- Exclude CPs, CDs, and NCDs with original maturity under one year from repo eligibility.
- Verify participant eligibility: scheduled banks (excluding RRBs/LABs), primary dealers, NBFCs, and specified FIs can transact.
- Comply with the Repo in Corporate Debt Securities (Reserve Bank) Directions, 2010 effective March 1, 2010.
Who it affects
Scheduled commercial banks (excluding RRBs and LABs), Primary dealers, NBFCs registered with RBI, All-India Financial Institutions (Exim Bank, NABARD, NHB, SIDBI), Other regulated entities (mutual funds, HFCs, insurance companies) with regulator approval
What securities are eligible for repo under these directions?
Only listed corporate debt securities rated AA or above, held in demat form by the repo seller, are eligible. Short-term instruments like CPs, CDs, and NCDs with original maturity under one year are excluded.
Which entities can participate in corporate bond repo?
Eligible participants include scheduled commercial banks (excluding RRBs and LABs), primary dealers, RBI-registered NBFCs, and all-India FIs. Mutual funds, HFCs, and insurance companies need approval from their respective regulators.
When did these directions take effect?
The Repo in Corporate Debt Securities (Reserve Bank) Directions, 2010 came into force on March 1, 2010.