UCBs allowed secondary market non-SLR investments with non-bank participants

Mumbai: In a move to deepen and broaden the bond market, the Reserve Bank of Indi has decided to allow Urban Co-operative Banks to invest in non-SLR securities in the secondary market with non-bank participants like mutual funds and insurance companies

In its bimonthly monetary policy statement on Wednesday, the Reserve Bank said, “it has been decided to permit Primary (Urban) Co-operative Banks to undertake eligible transactions for acquisition / sale of non-SLR investment in secondary market with mutual funds, pension / provident funds, and insurance companies”

This will be in addition to undertaking eligible transactions with Scheduled Commercial Banks and Primary Dealers. Detailed guidelines will be issued by the end of September 2018. Though there are no clear estimates of the share of various participants in the secondary bond market, treasury managers in private bank said that non-bank segment in the secondary market is a growing segment “The move will definitely help deepen the bond market” said a former treasury head with a foreign bank.


As for the Urban Co-operative banks, industry players see this as one more step towards creating a level playing field with commercial banks. “ Treasury desks at many UCBs are well equipped to handle this additional source of business” said Vikrant Ponkshe, a banking consultant, who headed Cosmos Banks. ” “The move will help UCBs boost treasury income at a time when government bonds are not so attractive” he said.

As per the current RBI guidelines, the non-SLR investments of UCBs are capped at 10% of a bank’s total deposits as on March 31 of the previous year. They can invest in CPs, bonds and debentures of top rated companies. Besides, they are also allowed to invest in debt mutual funds, money market mutual funds and shares of market infrastructure companies.

“The move is one more step towards creating a level playing field for UCBs with commercial banks” said Ponkshe. The Reserve Bank in its June policy statement announced its intention to allow UCBs to voluntarily to convert into small finance bank.