What changed
RBI finalised the Reserve Bank of India (Government Securities Lending) Directions, 2023, based on a February 2023 draft and public comments. The directions take immediate effect and apply to all OTC government securities lending transactions. Eligible securities are central government securities excluding Treasury Bills.
What it means for you
Banks and other market participants can now lend or borrow central government securities (excluding T-bills) in the OTC market for a fee, using other government securities as collateral. Settlement must be delivery-versus-delivery, ensuring simultaneous transfer. This provides a formal mechanism to improve liquidity and enable short-selling or inventory management in the G-sec market.
What you must do
- Review the final Directions and update internal policies for GSL transactions.
- Ensure all OTC GSL deals comply with delivery-versus-delivery settlement and collateral requirements.
- Train treasury and operations teams on the new framework, including fee negotiation and documentation.
- Monitor RBI circulars for any subsequent clarifications or operational guidelines.
Who it affects
All participants in the government securities market, Banks and primary dealers, Mutual funds and insurance companies dealing in G-secs, Clearing corporations and central counterparties
Which securities are eligible for lending under these directions?
Only central government securities excluding Treasury Bills are eligible for lending or borrowing under the GSL framework.
What settlement mechanism is required for GSL transactions?
All GSL transactions must settle on a delivery-versus-delivery basis, meaning the transfer of borrowed securities and collateral securities happens simultaneously.
Do these directions apply to exchange-traded GSL transactions?
No, the directions apply only to Over-the-Counter (OTC) markets, including those executed on Electronic Trading Platforms (ETPs), but not to exchanges.