FIIs can now use corporate bonds, govt securities as collateral
Current · Source: Reserve Bank of India · RBI/2012-13/439 · issued 14 Mar 2013 · ~1 min read
Quick answerRBI now permits FIIs to pledge corporate bonds as collateral in the cash segment, and both government securities and corporate bonds in the F&O segment, expanding eligible collateral beyond cash and AAA-rated foreign sovereign securities.
The rule, in the simplest words
FIIs (foreign investors) can now use corporate bonds (company loans) as a promise to pay in the cash segment (normal buying/selling of shares).
In the F&O segment (futures and options trading), FIIs can also use government securities (government loans) and corporate bonds as a promise to pay.
Before this rule, FIIs could only use cash or AAA-rated foreign government bonds as a promise to pay.
Banks that handle foreign money must update their rules and tell their FII clients about these new options.
SEBI (the market regulator) will give detailed steps on how to use these new promises to pay.
How it plays out — a real example
A forex & trade-finance officer in Indore, Priya, works for a bank that acts as a custodian for FIIs. After this rule, she updates her internal system to accept corporate bonds from an FII client as collateral for their cash trades, and she sends an email to the client explaining they can now pledge government securities for their futures trades. She also notes that SEBI's detailed guidelines are coming soon, so she holds off on finalizing the new agreements until then.
What changed
Previously, FIIs could only offer cash and AAA-rated foreign sovereign securities as collateral in both cash and F&O segments. Now, corporate bonds are also allowed in the cash segment, and government securities and corporate bonds are permitted in the F&O segment. SEBI will issue separate operational guidelines for these changes.
What it means for you
This expansion gives FIIs more flexibility to use their Indian investments as collateral, potentially increasing their participation in Indian markets. For banks acting as custodians, this means new processes for verifying and holding these additional collateral types, and a need to update internal systems and client advisories accordingly.
What you must do
Update internal policies to accept corporate bonds and government securities as collateral from FIIs in both cash and F&O segments.
Inform FII clients about the new eligible collateral types and any documentation requirements.
Coordinate with SEBI for operational guidelines and ensure compliance with their forthcoming circular.
Review and amend any existing collateral management agreements with FIIs to reflect the expanded options.
Who it affects
AD Category-I banks, FIIs and their custodians, Stock exchanges in India
❓ Common questions
What specific securities are now allowed as collateral for FIIs?
FIIs can now use corporate bonds in the cash segment, and both government securities and corporate bonds in the F&O segment, in addition to cash and AAA-rated foreign sovereign securities already permitted.
Who will issue the operational guidelines for these changes?
SEBI will issue separate operational guidelines for implementing the new collateral options.
Does this circular affect any existing permissions or approvals?
No, the directions are without prejudice to any permissions or approvals required under any other law.
📜 Read the original circular — full text as issued by RBI
RBI/2012-13/439
A.P. (DIR Series) Circular No. 90
March 14, 2013
To
All Category – I Authorised Dealer Banks
Madam / Sir,
Maintenance of Collateral by Foreign Institutional Investors (FIIs)
for transactions in the cash and F & O segments
Attention of Authorised Dealer Category - I (AD Category-I) banks is invited to Schedule 5 to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000 , as amended from time to time, in terms of which FIIs may offer such securities as permitted by the Reserve Bank from time to time as collateral to the recognized Stock Exchanges in India for their transactions in exchange traded derivative contracts as specified in sub-Regulation 6 of Regulation 5 of the said Notification and A.P. (DIR Series) Circular No. 4 dated July 28, 2006 and A.P. (DIR Series) Circular No. 47 dated April 12, 2010 .
2. On a review, it has been decided in consultation with the Government of India and the Securities and Exchange Board of India (SEBI), to permit FIIs to use, in addition to already permitted collaterals, their investments in corporate bonds as collateral in the cash segment and government securities and corporate bonds as collaterals in the F & O segment. The operational guidelines in this regard will be issued separately by SEBI. With the proposed changes coming into effect, henceforth, FIIs will be eligible to offer government securities/corporate bonds (acquired by FIIs in accordance with provisions of Schedule 5 to Notification No. FEMA 20 dated May 3, 2000), cash and foreign sovereign securities with AAA ratings in both cash and F & O segments.
3. AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers concerned.
4. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.
Yours faithfully,
(Rudra Narayan Kar)
Chief General Manager-in Charge
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2012-13/439 · issued 14 Mar 2013. The plain-English explanation above is BankPulse’s own independent summary.
Update internal policies to accept corporate bonds and government securities as collateral from FIIs in both cash and F&O segments.
Inform FII clients about the new eligible collateral types and any documentation requirements.
Review and amend any existing collateral management agreements with FIIs to reflect the expanded options.
📜 Compliance
Coordinate with SEBI for operational guidelines and ensure compliance with their forthcoming circular.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are a Credit Manager at a bank this circular applies to (AD Category-I banks, FIIs and their custodians, Stock exchanges in India), your first concrete step on “FIIs can now use corporate bonds, govt securities as collateral” is: “Update internal policies to accept corporate bonds and government securities as collateral from FIIs in both cash and F&O segments.” (RBI issued this 14 Mar 2013).
Circular: RBI/2012-13/439 -- FIIs can now use corporate bonds, govt securities as collateral
Issued: 14 Mar 2013
Action required: Update internal policies to accept corporate bonds and government securities as collateral from FIIs in both cash and F&O segments.
Action required: Inform FII clients about the new eligible collateral types and any documentation requirements.
Action required: Coordinate with SEBI for operational guidelines and ensure compliance with their forthcoming circular.
Action required: Review and amend any existing collateral management agreements with FIIs to reflect the expanded options.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=7890&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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