What changed
Previously, three SGL bounces in a half-year led to a 6-month SGL account suspension, with permanent debarment on further bounces. Now, RBI imposes graded monetary penalties (0.10% to 0.50% of default amount, max Rs 5 lakh per instance) for each bounce, with debarment from short sales only after the tenth default in a financial year. The circular also mandates disclosure of default instances and penalty amounts in balance sheet notes.
What it means for you
Banks and other SGL account holders face a more flexible but potentially costlier penalty regime for settlement failures. The shift from automatic suspension to monetary penalties allows continued access to SGL facilities for most defaults, but repeated bounces (10+) restrict short-selling capabilities. This encourages better liquidity and securities management to avoid escalating penalties and disclosure requirements.
What you must do
- Review internal controls to prevent SGL bounces due to insufficient funds or securities.
- Ensure penalty payments are made within 5 working days of RBI intimation via cheque or electronic mode.
- Disclose the number of default instances and penalty paid in the 'Notes to Account' of your balance sheet.
- Monitor default count in the financial year to avoid reaching the 10th default threshold and losing short-sale privileges.
Who it affects
All SGL/CSGL account holders, NDS members
What is considered an SGL bounce under this circular?
An SGL bounce occurs when a government securities transaction fails to settle due to insufficient funds in the buyer's current account or insufficient securities in the seller's SGL/CSGL account with RBI.
What happens after the tenth default in a financial year?
On the tenth default, the entity is debarred from using its SGL account for short sales in government securities for the rest of the financial year. RBI may restore short-sale privileges in the next financial year if satisfied with improvements in internal controls.
Can RBI still impose a temporary or permanent debarment despite these penalties?
Yes, RBI reserves the right to take any action, including temporary or permanent debarment of the SGL account holder, for violations of account terms or operational guidelines, as per the Government Securities Act, 2006.