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The Reserve Bank of India on Friday issued draft regulations for lending and borrowing of government securities. The RBI, in its monetary policy review earlier this month, had proposed to introduce a mechanism for lending and borrowing of government securities. The system is expected to facilitate wider participation in the securities lending market by giving investors an opportunity to enhance portfolio returns by using passive securities.
According to the Reserve Bank’s draft Directions (Borrowing of Government Securities), 2023, “The transaction for lending and borrowing (GSL) of Government securities shall be for a minimum period of one day and a maximum period of 90 days.” Regarding this, banks, market participants and other relevant parties have been asked to respond by March 17, 2023.
According to the draft directions, securities issued by the central government will be eligible for lending and borrowing. It does not include treasury bills. Securities (including Treasury Bills) issued by the Central Government and State Governments will be eligible for guarantee under the GSL transaction. An entity eligible to undertake repo transactions in Government securities and any other entity approved by the Reserve Bank shall be eligible to participate in GSL transactions as lender of the securities.
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