NHB (ND)/HFC (DRS)/Repo/1264/2003
April 23, 2003
All HFCs registered with NHB
Ready Forward Transactions in Government Securities
In the ‘Mid-term review of Monetary and Credit Policy for the year 2001-2003’ announced by the Reserve Bank of India [RBI] wherein the proposal to extend eligibility for ready forward (Repo) contracts to select categories of gilt holders, with adequate safeguards to ensure Delivery Vs Payment (DVP) and transparency was conveyed. RBI has issued necessary notification, No. S. O. 131 (E) dated 22nd January 2003 (copy enclosed for ready reference), in this regard. RBI has extended eligibility to select category of CSGL (Gilt) Account holders including housing finance companies registered with National Housing Bank to enter in to ready forward transactions in Government Securities.
2. Pursuant to the above policy of RBI, the National Housing Bank hereby permits all housing finance companies registered with the Bank under section 29A of the National Housing Bank Act, 1987 to enter in to ready forward transactions in Government Securities with effect from 10th March 2003 subject to the terms and conditions prescribed below:
a) Ready forward contracts may be undertaken only in i) dated securities and Treasury Bills issued by the Government of India and ii) dated securities issued by the State Governments.
b) Ready forward contracts in the above mentioned securities may be entered in to by any housing finance company having valid certificate of registration issued by National Housing Bank under section 29A of the National Housing Bank Act, 1987 maintaining a Subsidiary General Ledger (SGL) account with the Reserve Bank of India, Mumbai or maintain gilt accounts (i.e. gilt account holders) with a bank or any other entity (i.e. the custodian) permitted by the RBI/NHB to maintain Constituent Subsidiary General Ledger Account (CSGL Account) with RBI’s public debt office Mumbai:
(c) Entities specified at (b) above can enter in to ready forward transactions subject to the following restrictions:
i. An SGL account holder may not enter in to a ready forward contract with its own constituent. That is ready forward contracts should not be undertaken between a custodian and its gilt account holder.
ii. Any two gilt account holders maintaining their gilt accounts with the same custodian (i.e., the CSGL account holder) may not enter in to ready forward contracts with each other, and
iii. Housing finance companies may not enter in to ready forward contracts with cooperative banks.
(d) All ready forward contracts shall be reported on the Negotiated Dealing System (NDS). In respect of ready forward contracts involving gilt account holders, the custodian (i.e., the CSGL account holder) with whom the gilt accounts are maintained will be responsible for reporting the deals on the NDS on behalf of the constituents (i.e. the guilt account holders).
(e) All ready forward contracts shall be settled through the SGL Account/CSGL Account maintained with the RBI, Mumbai, with the Clearing Corporation of India Ltd. (CCIL) acting as the central counter for all such Ready Forward transactions.
(f) The custodians should put in place an effective system of internal control and concurrent audit to ensure that: (i) ready forward transactions are undertaken only against the clear balance of securities in the gilt account, (ii) all such transactions are promptly recorded on the NDS, and (iii) other terms and conditions referred to above have been complied with.
(g) Ready Forward transactions can be undertaken only in securities held in excess of the prescribed minimum percentage of assets as specified in section 29B(1) of the National Housing Bank Act 1987( read together with notification No. NHB.HFC. LA1/CMD-2001 dated the 27th September, 2001).
(h) No sale transaction shall be put through without actually holding the securities in the portfolio by a seller of securities in the first leg of a ready forward transaction.
(i) Securities purchased under the ready forward contracts shall not be sold during the period of the contract.
4. The above terms and conditions are the relevant terms and conditions applicable to housing finance companies registered with National Housing Bank under Section 29A of the National Housing Bank Act,1987, referred to in the provisio to paragraph (b) of the Reserve Bank of India’s Notification no.S.O.131(E) dated 22nd January 2003.
5. Please acknowledge receipt.