What changed
Earlier, UCBs were barred from any short selling of government securities, even intra-day. Now, RBI has allowed select UCBs that meet eligibility conditions to seek permission for intra-day short selling. The move relaxes the 2003 restriction for well-managed banks.
What it means for you
This gives eligible UCBs a new tool for active treasury management, enabling them to profit from price declines in G-Secs within the same trading day. Banks must strengthen risk management and ensure concurrent audit compliance to qualify. It may increase market liquidity but also requires tighter oversight.
What you must do
- Check if your bank meets NDS-OM membership, net worth ₹25 crore, CRAR ≥9%, and net NPA ≤3% conditions.
- Ensure mandatory concurrent audit of treasury operations is in place and sound risk management practices are documented.
- Apply to your Regional Office for permission to undertake intra-day short selling of government securities.
- Adhere to all IDMD instructions on intra-day short selling issued from time to time.
Who it affects
Primary (Urban) Co-operative Banks, Treasury departments of eligible UCBs, Regional Offices of RBI processing permissions
What is intra-day short selling of government securities?
It means selling G-Secs that the bank does not own at the time of sale, with the obligation to buy them back within the same trading day, to profit from price declines.
Which UCBs are eligible for this facility?
UCBs that are NDS-OM members, have net worth of ₹25 crore or more, CRAR of 9% or above, net NPA not exceeding 3%, and maintain sound risk management with concurrent treasury audit.
Do eligible UCBs automatically get this permission?
No, they must apply to and obtain specific permission from their respective Regional Office of RBI before undertaking such transactions.