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Directions on Repurchase Transactions (Repo)

Reserve Bank of India (RBI) had issued directions on repurchase transactions.

What is repo, reverse repo and tri-party repo?

  • Repo means an instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.
  • Reverse repo means an instrument for lending funds by purchasing securities with an agreement to resell the securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.
  • A repo transaction by an entity is reverse repo transaction for the counterpart entity. 
  • Tri-party repo means a repo contract where a third entity (apart from the borrower and lender), called a Tri-Party Agent, acts as an intermediary between the two parties to the repo to facilitate services like collateral selection, payment and settlement, custody and management during the life of the transaction.

To which transactions shall the directions be applicable?

  • The directions shall be applicable to repo undertaken on recognized stock exchanges, electronic trading platforms (ETP) and Over-the-Counter (OTC). 
  • The directions shall not apply to repo / reverse repo transactions under the Liquidity Adjustment Facility and the Marginal Standing Facility.

Which are the eligible securities for repo?

The securities eligible for repo shall include –

  • Government securities issued by the Central Government or a State Government.
  • Listed corporate bonds and debentures, subject to the condition that no participant shall borrow against the collateral of its own securities, or securities issued by a related entity. 
  • Commercial Papers (CPs) – an unsecured money market instrument issued in the form of a promissory note with original tenor between 7 days to 1 year.
  • Certificate of Deposits (CDs) – a negotiable money market instrument and issued in dematerialized form or as a Usance Promissory Note against funds deposited at a bank or other eligible financial institution for a specified time period.
  • Units of Debt ETFs.
  • Municipal Debt Securities (made eligible vide notification in October 2025).
  • Any other security of a local authority as may be specified in this behalf by the Central Government.

Who are the eligible participants?

The following are eligible to participate in repo transaction –

  • Regulated entity – any person, other than an individual or HUF, whose business activities are being regulated by any one of the financial regulators in India viz., RBI, Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), Pension Fund Regulatory and Development Authority (PFRDA), National Housing Bank (NHB) and National Bank for Agriculture and Rural Development (NABARD).
  • Listed corporate.
  • Unlisted company, which has been issued special securities by the Government of India, using only such special securities as collateral.
  • All India Financial Institution (FIs) viz. Exim Bank, NABARD, NHB, Small Industries Development Bank of India (SIDBI) and National Bank for Financing Infrastructure and Development, constituted by an Act of Parliament.
  • Any other entity approved by RBI from time to time for this purpose.

What shall be the tenor of repo?

Repos shall be undertaken for a minimum period of 1 day and a maximum period of 1 year.

What are the directions on trading of repo?

  • Repo transactions may be traded on any recognized stock exchanges, or an ETP duly authorised by RBI or in the OTC market. However, prior approval of RBI is required for trading repos on any trading platform, including on recognized stock exchanges.
  • Repo transactions, including tri-party repo transactions, may use any mutually agreed trading process, including but not limited to, bilateral or multilateral, quote driven or order driven processes, anonymous or otherwise.
  • Settlement of trades shall be as below –
    • The first leg of repo transactions shall settle either on a T+0 or T+1 basis.
    • Repo transactions shall settle on a Delivery vs Payments (DvP) basis i.e. transfer of funds from the buyer of securities made simultaneously with the transfer of securities by the seller of securities.
    • Repos in government securities shall settle through Clearing Corporation of India Limited (CCIL).
    • Repos in other eligible securities shall settle through the clearing house of exchanges.

What are the directions on sale and substitution of repoed security?

Securities purchased under repo may be –

  • On-sold either as an outright transaction or as part of another repo transaction. Outright sale of securities acquired under repo shall be undertaken only by such entities that are eligible to undertake short sale transactions in terms of the relevant directions of RBI and in such securities that are permitted to be short sold.
  • Substituted by another security in terms of the rules of any approved clearing agency.

What are the directions on pricing of collateral, haircut and margining?

  • Collaterals shall be priced transparently at prevailing market prices, in the first leg of a repo.
  • The price for the second leg will be the price for the first leg plus interest.
  • Haircut / margins will be decided either by the clearing house or may be bilaterally agreed upon. Haircut is the difference between the market value of the collateral and the amount borrowed / lent against that collateral. The minimum haircut shall be as below –
    • Listed corporate bonds and debentures – 2% of market value. 
    • CPs and CDs – 1.5% of market value.
    • Securities issued by a local authority – 2% of market value. 

What are the directions on computation of Cash Reserve Ratio (CRR) / Statutory Liquidity Ratio (SLR) and borrowing limit?

  • Funds borrowed under repo including tri-party repo in government securities shall be exempted from CRR / SLR computation and the security acquired under repo shall be eligible for SLR provided the security is primarily eligible for SLR.
  • Borrowings by a bank through repo in corporate bonds and debentures shall be reckoned as liabilities for CRR / SLR requirement.


References

Reserve Bank of India. (2025, November 11). 'Master Direction – Reserve Bank of India (Repurchase Transactions (Repo)) Directions, 2025'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12920&Mode=0


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