What changed
RBI issued revised guidelines for Value Free Transfer (VFT) of government securities, replacing the earlier guidelines from November 16, 2018. The new guidelines streamline and expand the list of eligible transactions for VFT, including specific provisions for margin/collateral transfers under CSA/GMRA and stock exchanges. All eligible and permitted VFTs must now be initiated through RBI's e-Kuber system and are subject to concurrent audit on a 100% sampling basis.
What it means for you
Banks and other SGL/CSGL holders must update their internal processes to align with the revised VFT guidelines, ensuring that only listed transactions are processed without payment legs. The requirement for concurrent audit on all VFTs increases operational oversight, necessitating robust audit mechanisms. Institutions must also ensure that margin/collateral transfers under CSA/GMRA are held in separate CSGL accounts with RBI approval, adding compliance layers.
What you must do
- Review and update internal VFT policies to include only transactions listed in para 3 of the guidelines.
- Ensure all VFTs are processed through e-Kuber and subject to concurrent audit on a 100% sampling basis.
- For margin/collateral transfers under CSA/GMRA, open separate CSGL accounts with RBI permission and maintain appropriate documentation.
- Obtain one-time RBI approval for SGL account holders to receive Variation Margin under CSA/GMRA.
- Submit any case-to-case VFT applications to RBI's Public Debt Office, Mumbai, via email.
Who it affects
All SGL/CSGL account holders, Banks and financial institutions dealing in government securities, Clearing corporations and depositories, Foreign Portfolio Investors and their custodians, Gilt Account Holders
What is a Value Free Transfer (VFT) of government securities?
VFT is a transfer of government securities from one SGL/CSGL account to another without a corresponding payment leg in RBI's books, used for specific non-trade transactions like gifts, inheritance, or collateral posting.
Are margin/collateral transfers under CSA/GMRA eligible for VFT?
Yes, but they require a separate CSGL account opened with RBI's specific permission, and at least one side of the transaction must be an RBI-regulated entity. SGL account holders receiving Variation Margin need one-time RBI approval.
How are VFTs audited under the new guidelines?
All VFTs must be audited on a 100% sampling basis by SGL/CSGL holders to verify they fall under eligible or permitted categories. Any deviations must be reported to RBI immediately.