RBI permits UCBs to undertake forward contracts in corp debt

NEW DELHI: Reserve Bank today allowed Urban Cooperative Banks ( UCBs) to undertake ready forward contracts in corporate debt securities.

"It has been decided to include scheduled UCBs with strong financials and sound risk management practices as eligible participants to undertake repo transactions in corporate bonds," RBI said in a notification.

Earlier, entities like scheduled commercial bank, Primary Dealer, financial institutions like Exim Bank, NABARD, NHB were allowed to undertake such transactions.

Corporate Debt Security means non-convertible debt securities, which create indebtedness, including debentures, bonds and such other securities of a company or a body corporate constituted by or under a central or state act.

Repos in corporate debt securities shall be for a minimum period of one day and a maximum period of one year.

Participants shall enter into repo transactions in corporate debt securities in the OTC market.

Only listed corporate debt securities which are rated 'AA' or above by the rating agencies, that are held in the security account of the repo seller, in demat form, shall be eligible provided that Commercial Papers (CPs)and other instruments, including Non-Convertible Debentures (NCDs), of less than one year of original maturity, shall not be eligible securities for undertaking repo.