What changed
RBI revised 2003 guidelines to align with the legal definition under the RBI (Amendment) Act, 2006. Repo/reverse repo must now be accounted as secured borrowing/lending, not outright sale/purchase. Securities remain on the seller's balance sheet during the repo period, while the buyer records them in a separate sub-head.
What it means for you
Banks must reflect the true economic substance of repos as collateralized funding, enhancing transparency. This impacts profit recognition, capital adequacy, and liquidity reporting. Coupon accrual stays with the seller; buyers pass on any coupon received during the repo period to the seller.
What you must do
- Update accounting policies to treat repos as collateralized borrowing/lending, not outright sales.
- Ensure securities sold under repo remain in the seller's investment account; buyer records them in a separate sub-head.
- Accrue coupon/discount on repoed securities only on the seller's books; pass on any coupon received by the buyer to the seller.
- Contract first leg at prevailing market rates; ensure second leg price reflects repo interest.
- Exclude LAF transactions with RBI from these guidelines.
Who it affects
Commercial Banks, Co-operative Banks, Primary Dealers, Financial Institutions, Regional Rural Banks, NBFCs
Do these guidelines apply to repos under RBI's Liquidity Adjustment Facility?
No, repos/reverse repos conducted under LAF with RBI are explicitly excluded from these accounting norms.
How should coupon payments on securities under repo be handled?
The repo seller continues to accrue coupon/discount during the repo period. If the buyer receives a coupon, it must be passed on to the seller.
Can repos be done from any investment category?
Yes, market participants can undertake repos from Held for Trading, Available for Sale, or Held to Maturity categories.