Draft Reserve Bank of India (Government Securities Lending) Directions, 2023

The Reserve Bank of India (RBI) has released the Draft Reserve Bank of India (Government Securities Lending) Directions, 2023, to regulate the lending and borrowing of government securities in the securities lending market. The introduction of securities borrowing and lending in the government securities market is expected to provide investors with an opportunity to deploy idle securities to increase their portfolio returns.

Regulation of Government Securities Lending

The Draft Reserve Bank of India (Government Securities Lending) Directions, 2023, outline the regulations for the lending and borrowing of government securities. According to these norms, Government Securities Lending (GSL) transactions can be done for a minimum duration of 1 day and a maximum duration of 90 days.

The draft norms also provide for the following:

• The securities lending transaction should be executed through an approved platform, and the settlement should take place on the same day.
• The transaction should be carried out only between registered entities, i.e., entities that are eligible to deal in government securities as per the RBI’s regulations.
• The lending of securities can only be done against cash collateral.
• The lending fee, which is the fee charged for borrowing securities, should be based on market conditions.
• The lender can recall the securities at any time during the term of the transaction.
• The borrower should maintain the securities in the same form and manner as received from the lender.

Benefits of Securities Borrowing and Lending

The introduction of securities borrowing and lending in the government securities market is expected to have several benefits. It will provide investors with an opportunity to deploy idle securities to increase their portfolio returns. The securities lending market will also help to increase the liquidity of the government securities market. This will help in the efficient price discovery of government securities.

The securities lending market will also help in the development of repo markets. Repo markets are markets where short-term borrowing and lending of securities takes place. The development of the repo market is expected to help in the efficient functioning of the money market. It will also help in the transmission of monetary policy.