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Reserve Bank of India- Monetory and Credit Policies (1999-2010) click here
RBI issues Revised Guidelines on Uniform Accounting for Repo/Reverse Repo Transactions
March 23, 2010:
The Reserve Bank of India had today issued revised guidelines on Uniform Accounting for Repo/Reverse Repo Transactions. The revised accounting guidelines for market repo will be effective from April 01, 2010.
The guidelines replace the guidelines issued in March 2003 which treated 'repo' as a combination of two independent sale/purchase transactions as per the legal provisions prevailing then. The accounting norms now propose to capture the economic essence of 'repo' as a collateralised lending/ borrowing transaction that is structured as a legal sale / purchase of securities as recognised by the RBI (Amendment) Act, 2006. The revision in the accounting norms would bring such transactions on to the balance sheet of the repo participants in its true economic sense, thus enhancing transparency.
The salient features of the revised guidelines are:
The revised accounting guidelines will apply to market repo transactions in government securities and corporate debt securities. These accounting norms would, however, not apply to repo / reverse repo transactions conducted under the Liquidity Adjustment Facility (LAF) with the RBI.
The securities sold under repo would continue to be reflected in the investment account of the repo seller and would be subject to the usual mark to market valuation discipline. Accordingly, the repo buyer would not reflect the securities acquired under repo in his investment account.
The movement of securities should be accounted for in the books of the counterparties by showing it as contra entries for the sake of greater transparency.
The regulatory treatment of market repo transactions in government securities will continue as hitherto, i.e., the funds borrowed under market repo will continue to be exempt from CRR/SLR computation and the security acquired under market reverse repo shall continue to be eligible for SLR. The applicability of the CRR/SLR norms for repo transactions in corporate bonds will, however, be as per the guidelines issued in January, 2010.
NOTE: Banks pay the repo rate to borrow from RBI and receive the reverse repo rate for parking surplus funds with the central bank. From 19th March 2010, The repo rate is up from 4.75% to 5% while the reverse repo rate is up from 3.25% to 3.5% with immediate effect. The higher repo rate will affect banks only when they start borrowing from the RBI. Currently banks have Rs 70,000 crore of surplus cash which they keep with the RBI.
Rationale behind repo rate hike-Click here
Bank rates are expected to go up after March 2010-Click here
Domestic Bank Lending Rates-Click here
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