What changed
RBI extended repo in corporate bonds to eligible Scheduled Urban Co-operative Banks. Only banks meeting specific financial health and risk management criteria can participate. Transactions are restricted to scheduled commercial banks and primary dealers.
What it means for you
Stronger urban co-operative banks get a new liquidity management tool using corporate bonds. Lenders in repo must hold capital for counterparty credit risk. Non-SLR investments including repo securities cannot exceed 10% of previous year's deposits; borrowed repo funds are capped at 2% of deposits and count as DTL for CRR/SLR.
What you must do
- Verify your bank meets CRAR ≥10%, gross NPA <5%, and three-year profit record before undertaking repo.
- Ensure concurrent audit of investment portfolio is in place and risk management practices are sound.
- Limit repo counterparties to scheduled commercial banks and primary dealers only.
- Monitor non-SLR investment ceiling (10% of previous year's deposits) including securities acquired under repo.
- Treat borrowed repo amount as part of DTL and maintain CRR/SLR on it.
Who it affects
Scheduled Urban Co-operative Banks, Scheduled commercial banks and primary dealers (as counterparties), RBI's Internal Debt Management Department
What are the eligibility conditions for a UCB to do repo in corporate bonds?
CRAR of 10% or more, gross NPA less than 5%, continuous profit for the previous three years, sound risk management, and mandatory concurrent audit of the investment portfolio.
Can UCBs do repo with any market participant?
No, repo transactions in corporate bonds can only be undertaken with scheduled commercial banks and primary dealers.
How are repo borrowings treated for reserve requirements?
The amount borrowed through repo is part of DTL and attracts CRR and SLR requirements.