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Scheme for Trading and Settlement of Sovereign Green Bonds (SGrBs) in the International Financial Services Centre (IFSC) in India

Reserve Bank of India (RBI) has published the scheme for trading and settlement of Sovereign Green Bonds (SGrBs) in the International Financial Services Centre (IFSC) in India.

Which are eligible securities under the Scheme?

Sovereign Green Bonds (SGrBs) issued by the Government of India shall be eligible for investment under the Scheme.

Who are eligible investors under the Scheme?

The following persons will be eligible investors under the Scheme –

  • Persons resident outside India as defined in Section 2(w) of the FEMA, 1999, that are eligible to invest in the IFSC, and are not incorporated in High-Risk Jurisdictions subject to a Call for Action as identified by FATF.
  • An IFSC Banking Unit (IBU) of a foreign bank which does not have a branch or subsidiary licensed to undertake banking business in India.
  • Persons resident outside India as treated under Foreign Exchange Management (International Financial Services Centre) Regulations, 2015, that are eligible to invest in the IFSC, and are not incorporated in High-Risk Jurisdictions subject to a Call for Action as identified by FATF provided such persons are not a branch, joint venture, subsidiary or trust of an entity incorporated in India.

However, funds / schemes, including the ones setup by entities incorporated in India, regulated by IFSCA under the IFSCA (Fund Management) Regulations, 2022 shall be considered as eligible investors under the Scheme.

Which are eligible IBUs under the Scheme?

An IBU of a bank in India and an IBU of a foreign bank, provided the foreign bank has a branch or subsidiary licensed to undertake banking business in India, shall be eligible to participate in the Scheme.

What are the features of the Scheme?

  • Investors can participate in the primary auctions of securities undertaken by RBI and transact in the secondary market for securities in the IFSC.
  • Eligible IBUs are not permitted to participate in the primary auctions but can undertake transaction in the secondary market.
  • The authorised depository and the authorised clearing corporations shall each open a Constituents' Subsidiary General Ledger (CSGL) account and a current account with RBI.
  • The authorised depository and the authorised clearing corporations may open an INR account with a commercial bank in India.

What are the conditions for participation in primary market under the Scheme?

  • Investors desirous of participating in the auction of securities conducted by RBI shall submit competitive bids in the primary auction through the authorised clearing corporations.
  • The authorised clearing corporations shall ensure that its current account with RBI is funded at the start of the day on the settlement date of the primary auction so as to meet the settlement obligations arising from subscriptions in the primary auction by the investors. Any failure to meet the settlement obligations shall be treated as an instance of ‘SGL bouncing’ and will be subjected to the applicable penal provisions.

What are the conditions for participation in secondary market under the Scheme?

  • Investors can trade in the secondary market in the IFSC with other investors and with eligible IBUs. 
  • Transactions between two eligible IBUs shall not be undertaken.
  • Securities maintained by investors with the authorised depository will be available for trading in the OTC markets in the IFSC.
  • The settlement cycle for trades in securities shall be T+1 or T+2 where T represents the trade date.
  • Eligible IBUs can trade with investors under this Scheme subject to the following –
    • Such transaction shall be undertaken on a ‘back-to-back’ arrangement. 
    • The transaction between an eligible IBU and its parent bank / branch or subsidiary in India of the parent bank, shall be for due consideration (for value transfer).
    • Back-to-back arrangement shall mean an arrangement under which an eligible IBU undertakes a transaction in eligible securities under this Scheme with an eligible investor and, in turn, enters into an off-setting transaction with its parent bank in India in case of an IBU of an Indian bank or with the branch or subsidiary in India of its parent bank in case of an IBU of a foreign bank.
    • The two legs of the back-to-back transaction shall be undertaken on the same date and the eligible IBUs shall not maintain any overnight open securities position. 
    • In case of any open securities position arising on any account including settlement failure or unwinding of trades with investors, the eligible IBU shall reverse the trade with its parent bank / branch or subsidiary in India of the parent bank on a T+0 settlement basis so as to close out any open securities position.
  • Settlement of transactions between two investors or between an investor and an eligible IBU –
    • Settlement of securities shall take place in the books of the authorised depository. 
    • The fund leg of the transactions shall be settled in foreign currency.
  • Settlement of transactions between an eligible IBU and its parent bank / branch or subsidiary in India of its parent bank
    • Settlement shall be on bilateral basis.
    • The transfer of securities shall be facilitated by the Clearing Corporation of India Limited (CCIL) from / to the Subsidiary General Ledger (SGL) account of parent bank / branch or subsidiary of parent bank in India to / from the CSGL account of the authorised depository.
    • The fund leg of the transactions shall be settled in foreign currency.

What are other conditions under the Scheme?

  • All coupon payments and redemption proceeds in respect of the securities held in the CSGL account of the authorised depository shall be credited to the current account of the authorised depository maintained with RBI on the due date. 
  • The authorised depository, in turn, shall credit the coupon and redemption proceeds to the accounts of the investors on the same day / for the same value date, after deduction of applicable taxes.
  • Investors shall not be permitted to repackage or write any derivative instrument on underlying securities held by them under the Scheme. 
  • Investors shall also not be permitted to undertake repo transactions in such securities.
  • Investors which are also eligible to participate in the domestic market shall not be permitted to shift their securities to / from their onshore gilt / demat account from / to their demat / securities account in the IFSC.


References

Reserve Bank of India. (2024, August 29). 'Scheme for Trading and Settlement of Sovereign Green Bonds in the International Financial Services Centre in India'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12730&Mode=0


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