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Stripping / Reconstitution in Government Securities

Reserve Bank of India (RBI) has recently issued guidelines on stripping / reconstitution in State Government Securities. This is in addition to stripping / reconstitution already permitted in eligible Central Government dated securities.

What is Separate Trading of Registered Interest and Principal of Securities (STRIPS)?

Separate Trading of Registered Interest and Principal of Securities (STRIPS) are created by way of separating the cash flows associated with a regular Government Security i.e. each semi-annual coupon payment and the final principal payment to be received from the issuer, into separate securities.

For example, when ₹100 of the 8.60% GS 2028 is stripped, each cash flow of coupon (₹4.30 each half year) will become a coupon STRIP (maturing on the respective coupon dates) and the principal payment (₹100 at maturity) will become a principal STRIP (maturing on the redemption date of the security). These cash flows are traded separately as independent securities in the secondary market. 

What is stripping and reconstitution?

  • Stripping is a process of converting periodic coupon payments and principal payment of an existing Government security into tradable zero-coupon securities. 
  • Reconstitution is the reverse of stripping, where, the coupon STRIPS and principal STRIPS are reassembled into the original Government security.

Which securities are eligible for stripping / reconstitution?

  • All fixed coupon securities issued by the Government of India, irrespective of the year of maturity, shall be eligible for stripping / reconstitution.
  • All fixed coupon securities issued by a State Government / Union Territory, having a residual maturity of up to 14 years and minimum outstanding of ₹1,000 crore as on the day of stripping, shall be eligible for Stripping.

Provide that the securities are reckoned as eligible investment for the purpose of Statutory Liquidity Ratio (SLR) and are transferable.

How shall the stripping request be placed?

  • Market Participants having a Subsidiary General Ledger (SGL) account with RBI can place requests directly in RBI Core Banking Solution (e-Kuber system) for stripping / reconstitution.
  • Request for stripping / reconstitution by Gilt Account Holders shall be placed with their respective custodians maintaining the Constituent Subsidiary General Ledger (CSGL) account with RBI and the custodians, in turn, will place the request on behalf of their constituents in e-Kuber.

What is the International Security Identification Number (ISIN) of STRIPS?

  • Each security is assigned a unique number at the time of issuance called ISIN.
  • All coupon STRIPS with the same maturity date shall have the same ISIN, regardless of the underlying security from which the interest payments were stripped, and coupon STRIPS of the same cash flow shall be fungible (interchangeable). 
  • The ISIN of coupon STRIPS shall be different from the ISIN of principal STRIPS, even if they have the same maturity date, and shall not be fungible.

What are the other features of STRIPS?

  • STRIPS are zero-coupon securities, which usually trade in the market at a discount and are redeemed at face value. 
  • STRIPS are reckoned as eligible securities for SLR purposes. 
  • STRIPS are eligible securities for market repo as well as repo under Liquidity Adjustment Facility (LAF) of RBI.
  • Short sale of STRIPS is not permitted.
  • Stripping / reconstitution may be done at the option of the holder at any time from the date of issuance of security till its maturity.
  • STRIPS are created out of existing securities only and unlike other securities, are not issued through auctions. 
  • STRIPS have zero reinvestment risk (discounted instruments with no periodic interest payment thereby obviating the need for reinvestment of intermediate cash flows arising out of the investment).


References

Government of India. (2009, October 16). 'Government Securities - Separate Trading of Registered Interest and Principal of Securities (STRIPS)'. Retrieved from https://website.rbi.org.in/documents/87730/39016390/Link+4_October+16_2009_JUNE122025.pdf

Government of India. (2018, April 10). 'Government Securities –Separate Trading of Registered Interest and Principal of Securities (STRIPS) (Amendment)'. Retrieved from https://website.rbi.org.in/documents/87730/39016390/STRIP03052018_A1.pdf

Government of India. (2025, May 29). 'Government Securities – Separate Trading of Registered Interest and Principal of Securities'. Retrieved from https://website.rbi.org.in/documents/87730/39016390/Link+3_enclosed_JUNE122025.pdf

Reserve Bank of India. (2010, March 25). 'Guidelines on Stripping/Reconstitution of Government Securities'. Retrieved from https://website.rbi.org.in/en/web/rbi/-/notifications/guidelines-on-stripping-reconstitution-of-government-securities-5546

Reserve Bank of India. (2010, March 25). 'Guidelines on Stripping/Reconstitution of Government Securities'. Retrieved from https://website.rbi.org.in/documents/87730/39016390/STRI250310.pdf

Reserve Bank of India. (2020, April 01). 'Government Securities Market in India – A Primer'. Retrieved from https://www.rbi.org.in/Scripts/FAQView.aspx?Id=79

Reserve Bank of India. (2025, June 12). 'Stripping/Reconstitution in State Government Securities'. Retrieved from https://website.rbi.org.in/web/rbi/-/notifications/stripping/reconstitution-in-state-government-securities


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