The Reserve Bank of India has permitted sale of government securities already contracted for purchase with effect from April 2, subject to certain conditions.
The central bank has also decided to shift the settlement mode of G-sec transactions (carried out through Clearing Corporation of India) to delivery versus payment III mode (DVP-III) so that each security is deliverable or receivable on a net basis for a particular settlement cycle as against the current system of gross settlement of securities under DVP-II mode.
RBI, in a release on Monday, said these measures are expected to improve liquidity in the G-sec market as also reduce the price risk of market participants.
Further, with new norms enabling rollover of repos, non-banks' movement away from call/notice money market would be facilitated and banks would also be enabled to reduce their dependence on these markets, it added.
Referring to the conditions, it said the purchase contract is confirmed prior to sale and guaranteed by CCIL or the security is contracted for purchase by RBI, and the sale transaction will settle either in same settlement cycle as the preceding purchase contract or in a subsequent cycle so that delivery obligation is met by the securities acquired under the purchase contract.
Currently, the sale of G-sec is permitted only if the seller actually holds the security in its portfolio, it said, adding these measures were announced in the mid-term monetary review.
RBI, has however, cautioned that any violation noticed in adherence to the conditions would attract penalities.
The penalities would be those as currently applicable to the bouncing of subsidiary general ledger forms besides attracting further regulatory action as deemed necessary, even if the deal has been settled because of the netting benefit under DVP-III, it added.