Corporate entry into repos, repos of corp bonds weighed

The Reserve Bank of India is planning to extend participation in the repos market to all corporates. Further, the central bank will also consider repos of corporate bonds.

With the Clearing Corporation of India Ltd (CCIL) now very well ensconced the issues of collateral management can be handled and thus the risks of undertaking repos against non-existent securities are ruled out, said Usha Thorat, executive director, RBI.

"Extending the collateral borrowing and lending obligation (CBLO) to all entities would ensure borrowing at market rates to any corporate having collateral in the form of government securities. Once all trades in such bonds is reported and settled through CCIL, perhaps the stage will be set for allowing repos in corporate bonds and thereby greatly enhancing their liquidity," she explained.

Direct lending to the infrastructure projects could lead to an asset-liability mismatch for banks. So a better way out would be for such projects to float bonds, which the banks could subscribe.

Thorat expressed concern that though everybody was talking of retailing of government securities, apart from a few banks, majority have not made any significant strategic moves in this regard.

Because of the prudential requirements for all types of banks, NBFCs, provident/pension funds, insurance companies apart from Trusts, educational institutions and non-profit organizations, there is a sizeable demand for gilts from such entities, which commercial banks with their sophisticated treasuries should well be in a position to meet, she added.

"What is preventing banks from giving two-way quotes in a few liquid securities across the maturity profile? This could be an OTC product or banks could use the exchanges by becoming direct members and provide such quotes. Banks have a competitive advantage in providing such services and would do well to exploit it," said Thorat.