Regulatory caps on bank guarantees boost demand for fixed deposit receipts

Arrangements between brokers and banks have come under Sebi, RBI lens over potential risks

Regulatory caps on bank guarantees have spurred the demand for fixed deposit receipts (FDRs) — both fully and partially funded — as the go-to instrument for clearing members (CMs) to place as collateral with clearing corporations (CCs) for obtaining trading limits.
 

At present, CCs accept cash, FDRs, bank guarantees (BGs) and select securities as assets for providing margins. Until a few years ago, BGs were popular instruments. However, the exchanges imposed strict caps, limiting their use. The cap in case of some brokers is just Rs 50 crore. Also, banks have limits on issuance of BGs tied to their networth