The Reserve Bank of India has set out a framework for a triparty repo market to enable participants to use underlying collateral more efficiently and facilitate the development of the term repo market in India.
The draft framework, issued on 11 April for public comment until 5 May, proposes the introduction of triparty repo on both government and corporate bonds, and sets out rules for collateral eligibility, reporting, settlement and agents.
Eligible triparty agents must have “past experience of at least five years in the financial sector, [in] India or abroad, preferably in offering custodial services”, as well as capital of at least INR 250 million (USD 3.87 million).
The introduction of a triparty repo market will be welcome news to market participants, whose securities lending business in India remains muted.
India’s National Securities Clearing Corporation cleared 77,730 securities lending trades in 2016, generating $9.23 million in lending fees. Those trades had a notional turnover of $1.79 billion.
Martin Corrall, who is on the executive board of the Pan Asia Securities Lending Association (PASLA) and group lead of a sub-working group on India, sees foreign participation as a key concern for the market.
He said recently: “It’s expensive for foreign borrowers in India. Offshore entities are required to post cash as collateral with high interest rates and no rebate paid, which creates an unfair playing field, whereas domestic players are allowed to post securities.”
“Concern on the Securities and Exchange Board of India’s view of overseas direct investment and limited supply due in part to the securities borrowing and lending infrastructure, has led to minimal offshore activity. Market access is concentrated on single stock futures.”
