Annexure I-A Short sale in Government Securities:
Banks may undertake outright sale of Central Government dated securities that they do not own, subject to the same being covered by outright purchase from the secondary market within the same trading day. Intra-day short selling is being permitted subject to the following conditions :
- Intra-day short sale transaction and also the covering of short position should be executed only on the Negotiated Dealing System - Order Matching (NDS-OM) platform.
- Under no circumstances should the short position be left uncovered at the end of the day. Inability to cover a short position during the trading day itself shall be treated as an instance of 'SGL bouncing' and will be liable to the disciplinary action prescribed in respect of SGL bouncing, besides attracting such further regulatory action as necessary.
- At no point of time should a bank accumulate a short position in excess of 0.25 per cent of the outstanding stock of a security. The information regarding the outstanding stock of each Government of India dated security is being made available on the RBI website (URL: www.rbi.org.in) with effect from March 1, 2006 to facilitate monitoring in this regard.
Before actually undertaking transactions banks are required to have in place a written policy on 'intra-day' short sale which should be approved by their respective Boards of Directors. The policy should lay down the internal guidelines which should include, inter alia, risk limits on short position, an aggregate nominal short sale limit (in terms of Face Value) across all eligible securities, the internal control systems to ensure adherence to regulatory and internal guidelines, reporting of short selling activity to the top management and the RBI, procedure to deal with violations, etc. (A copy of the said policy should be sent for prior information to the Internal Debt Management Department (IDMD) of the RBI.) A bank must have in place a system to detect violations if any, immediately, certainly within the same trading day. A bank which cannot ensure such prompt detection should not undertake short sale.
The above guidelines are not applicable to transactions of Gilt Account holders. Accordingly, Banks who act as custodians (i.e., CSGL account holders) and offer the facility of maintaining Gilt Accounts to their constituents should not permit settlement of any sale transaction by their constituents unless the security sold is actually held in the Gilt Account of the constituent. The above guidelines are also not applicable when the purchase contract is of a Gilt Account holder with the custodian itself.
Effective May 11, 2005, it was decided to permit sale of Government Securities allotted to successful bidders in primary issues on the day of allotment, with and between CSGL constituent account holders.
Banks should exercise abundant caution to ensure adherence to these guidelines. The concurrent auditors should specifically verify the compliance with these instructions and report violations, if any, on the date of trade itself, within a reasonably short time, to the appropriate internal authority. As part of their monthly reporting, concurrent auditors may verify whether the independent back office has taken cognizance of all such lapses and reported the same within the required time frame.
The concurrent audit reports should contain specific observations on the compliance with the above instructions and should be incorporated in the monthly report to the Chairman and Managing Director/Chief Executive Officer of the bank and the half yearly review to be placed before the Board of Directors. CCIL will make available to all market participants as part of its daily reports, the time stamp of all transactions as received from NDS. The mid office/back office and the auditors may use this information to supplement their checks/scrutiny of transactions for compliance with the instructions. Any violation noticed in this regard should immediately be reported to the concerned regulatory department of the Reserve Bank and the Public Debt Office (PDO), Reserve Bank of India, Mumbai. Any violation noticed in this regard would attract penalties as currently applicable to the bouncing of Subsidiary General Ledger (SGL) forms even if the deal has been settled because of the netting benefit under DVP III, besides attracting further regulatory action as deemed necessary.
Annexure I-B
When Issued Market - Guidelines
Definition
�When, as and if issued� (commonly known as �when-issued� (WI)) security refers to a security that has been authorized for issuance but not yet actually issued. WI trading takes place between the time a new issue is announced and the time it is actually issued. All "when issued" transactions are on an "if" basis, to be settled if and when the actual security is issued.
Mechanics of Operation
Transactions in a security on a When Issued basis shall be undertaken in the following manner.
a. WI transactions will be undertaken only in the case of securities that are being reissued. WI trading for issue of new securities will be considered at a later date.
b. WI transactions would commence on the notification date and it would cease on the working day immediately preceding the date of issue.
c. All WI transactions for all trade dates will be contracted for settlement on the date of issue.
d. At the time of settlement on the date of issue, trades in the WI security can be netted off with trades in the existing security.
e. �WI� transactions may be undertaken only on NDS-OM.
f. Any WI trade must have a Primary Dealer (PD) as a counterparty (both counterparties can be PDs). In other words, non-PDs cannot be both buyer and seller in a WI transaction.
g. Only PDs can take a short position in the WI market. Non-PD entities can sell the WI security only if they have a preceding purchase contract for equivalent or higher amount.
h. Open Positions in the WI market are subjected to the following limits:
i. Non-PD entities � Long Position, not exceeding 5 per cent of the notified amount.
ii. PDs � Long or Short Position, not exceeding 10 per cent of the notified amount.
i. In case a PD is unable to deliver securities to the buyer after the auction on the settlement (or issue) date, the transaction will be settled as per the default settlement mechanism of CCIL.
j. In the event of cancellation of the auction for whatever reason, all WI trades will be deemed null and void ab initio on grounds of force majeure.
Internal Control
All NDS-OM members participating in the WI market are required to have in place a written policy on WI trading which should be approved by the Board of Directors. The policy should lay down the internal guidelines which should include, inter alia, risk limits on WI position (including overall position in the security, WI plus the existing security), an aggregate nominal limit (in terms of Face Value) for WI and overall security, the internal control arrangements to ensure adherence to regulatory and internal guidelines, reporting of WI activity to the top management, procedure to deal with violations, etc. A system should be in place to detect violations immediately, certainly within the trading day.
The concurrent auditors should specifically verify compliance with these instructions and report violations on the date of trade itself, within a reasonably short time, to the appropriate internal authority. As part of their monthly reporting, concurrent auditors may verify whether the independent back office has taken cognizance of all such lapses and reported the same within the required time frame. Any violation of regulatory guidelines noticed in this regard should immediately be reported to the Public Debt Office (PDO), Mumbai and IDMD, Reserve Bank of India.
Reporting
Primary Dealers will report on a daily basis all �When Issued� transactions, undertaken by them in the format prescribed.
Annexure I-C
Para 1.2 (i) (b) Investment portfolio of banks � Transactions in securities � Conditions subject to which securities allotted in the auctions for primary issues can be sold
(i) The contract for sale can be entered into only once by the allottee bank on the basis of an authenticated allotment advice issued by Reserve Bank of India. The selling bank should make suitable noting/stamping on the allotment advice indicating the sale contract number etc., the details of which should be intimated to the buying entity. The buying entity should not enter into a contract to further resell the securities until it actually holds the securities in its investment account. Any sale of securities should be only on a T+0 or T+1 settlement basis.
(ii) The contract for sale of allotted securities can be entered into by banks with entities maintaining SGL Account with Reserve Bank of India as well as with and between CSGL account holders for delivery and settlement on the next working day through the Delivery versus Payment(DVP) system.
(iii) The face value of securities sold should not exceed the face value of securities indicated in the allotment advice.
(iv) The sale deal should be entered into directly without the involvement of broker/s.
(v) Separate record of such sale deals should be maintained containing details such as number and date of allotment advice, description and the face value of securities allotted, the purchase consideration, the number, date of delivery and face value of securities sold, sale consideration, the date and details of actual delivery i.e. SGL Form No., etc. This record should be made available to Reserve Bank of India for verification. Banks should immediately report any cases of failure to maintain such records.
(vi) Such type of sale transactions of Government securities allotted in the auctions for primary issues on the same day and based on authenticated allotment advice should be subjected to concurrent audit and the relative audit report should be placed before the Executive Director or the Chairman and Managing Director of the Bank once every month. A copy thereof should also be sent to the Department of Banking Supervision, Reserve Bank of India, Central Office, Mumbai.
(vii) Banks will be solely responsible for any failure of the contracts due to the securities not being credited to their SGL account on account of non-payment / bouncing of cheque etc.
Annexure � II
Para 1.2.6 (i) (g)
Investment port-folio of banks-Transactions in securities-Aggregate contract limit for individual brokers - clarifications
| Sr. No |
Issue Raised |
Response |
| 1. |
The year should be calendar year or financial year? |
Since banks close their accounts at the end of March, it may be more convenient to follow the financial year. However, the banks may follow calendar year or any other period of 12 months provided, it is consistently followed in future. |
| 2. |
Whether the limit is to be observed with reference to total transactions of the previous year as the total transactions of the current year would be known only at the end of the year? |
The limit has to be observed with reference to the year under review. While operating the limit the bank should keep in view the expected turnover of the current year which may be based on turnover of the previous year and anticipated rise or fall in the volume of business in the current year. |
| 3. |
Whether to arrive at the total transactions of the year, transa-ctions entered into directly with counter parties i.e. where no bro-kers are involved would also be taken into account? |
Not necessary. However, if there are any direct deals with the brokers as purchasers or sellers the same would have to be included in the total transactions to arrive at the limit of transactions to be done through an individual broker. |
| 4. |
Whether in case of ready forward deals both the legs of the deals i.e. purchase as well as sale will be included to arrive at the volume of total transactions? |
Yes. This is, however, only theoretical as R/F transactions in Govt. securities are now prohibited except in Treasury Bills and specified Govt. Securities |
| 5. |
Whether central loan/state loan/ treasury bills etc. purchased through direct subscriptions/auction will be included in the volume of total transactions? |
No, as brokers are not involved as intermidiaries. |
| 6. |
It is possible that even though bank considers that a particular broker has touched the prescribed limit of 5% he may come with an offer during the remaining period of the year which the bank may find it to be to its advantage as compared to offers received from the other brokers who have not yet done business upto the prescribed limit. |
If the offer received is more advantageous the limit for the broker may be exceeded, the reasons therefor and approval of the competent authority/Board obtained post facto. |
| 7. |
Whether the transaction conducted on behalf of the clients would also be included in the total transactions of the year? |
Yes. If they are conducted through the brokers. |
| 8. |
For a bank which rarely deals through brokers and consequently the volume of business is small maintaining the brokerwise limit of 5% may mean splitting the orders in small values amongst different brokers and there may also arise price differential. |
There may be no need to split an order. If any deal causes the particular broker's share to exceed 5% limit, our circular provides the necessary flexibility inasmuch as Board's post facto approval can be obtained |
| 9. |
During the course of the year it may not be possible to reasonably predict what will be the total quantum of transactions through brokers as a result of which there could be deviation in complying with the norm of 5%. |
The bank may get post facto approval from the Board after explaining to it the circumstances in which the limit was exceeded. |
| 10. |
Some of the small private sector banks have mentioned that where the volume of business particularly the transactions done through brokers is small the observance of 5% limit may be difficult. A suggestion has therefore been made that the limit may be required to be observed if the business done through a broker exceeds a cut-off point of, say Rs. 10 crore. |
As already observed, the limit of 5% can be exceeded subject to reporting the transactions to the competent authority post facto. Hence, no change in our instructions are considered necessary. |
Annexure - III
Para 1.2.8 (ii)
Recommendations of the Group on Non-SLR investments of banks
Pro-forma of minimum disclosure requirements in respect of private placement issues - Model Offer Document
All issuers must issue an offer document with terms of issue, authorised by Board Resolution not older than 6 months from the date of issue. The offer document should specifically mention the Board Resolution authorising the issue and designations of the officials who are authorised to issue the offer document. The offer document may be printed or typed �For Private Circulation Only�. The Offer Document should be signed by the authorised signatory. The offer document should contain the following minimum information :
I. General Information
1. Name and address of registered office of the company
2. Full names (expanded initials), addresses of Directors and the names of companies where they are Directors.
3. Listing of the issue (If listed, name of the Exchange)
4. Date of opening of the issue
Date of closing of the issue
Date of earliest closing of the issue.
5. Name and addresses of auditors and Lead Managers/arrangers
6. Name address of the trustee � consent letter to be produced (in case of debenture issue)
7. Rating from any Rating Agency and / or copy of the rationale of latest rating.
II. Particulars of the issue
a) Objects
b) Project cost and means of financing (including contribution of promoters) in case of new projects.
III. The model offer document should also contain the following information:
(1) Interest rate payable on application money till the date of allotment.
(2) Security : If it is a secured issue, the issue is to be secured, the offer documents should mention description of security, type of security, type of charge, Trustees, private charge-holders, if any, and likely date of creation of security, minimum security cover, revaluation, if any.
(3) If the security is collateralised by a guarantee, a copy of the guarantee or principal terms of the guarantee are to be included in the offer document.
(4) Interim Accounts, if any.
(5) Summary of last audited Balance Sheet and Profit & Loss Account with qualifications by Auditors, if any.
(6) Last two published Balance Sheet may be enclosed.
(7) Any conditions relating to tax exemption, capital adequacy etc. are to be brought out fully in the documents.
(8) The following details in case of companies undertaking major expansion or new projects :- (copy of project appraisal may be made available on request)
a) Cost of the project, with sources and uses of funds
b) Date of commencement with projected cash flows
c) Date of financial closure (details of commitments by other institutions to be provided)
d) Profile of the project (technology, market etc)
e) Risk factors
(9) If the instrument is of tenor of 5 years or more, projected cash flows.
IV . Banks may agree to insist upon the following conditionalities for issues under private placements
All the issuers in particular private sector corporates, should be willing to execute a subscription agreement in case of all secured debt issues, pending the execution of Trust Deed and charge documents. A standardised subscription agreement may be used by the banks, inter-alia, with the following important provisions :
(a) Letter of Allotment should be made within 30 days of allotment. Execution of Trust Deed and charge documents will be completed and debentures certificates will be despatched within the time limit laid down in the Companies Act but not exceeding in any case, 6 months from the date of the subscription agreement.
(b) In case of delay in complying with the above, the company will refund the amount of subscription with agreed rate of interest, or, will pay penal interest of 2% over the coupon rate till the above conditions are complied with, at the option of the bank.
(c) Pending creation of security, during the period of 6 months (or extended period), the principal Directors of the company should agree to indemnify the bank for any loss that may be suffered by the bank on account of the subscription to their debt issue. (This condition will not apply to PSUs).
(d) It will be the company�s responsibility to obtain consent of the prior charge-holders for creation of security within the stipulated period. Individual banks may insist upon execution of subscription agreement or a suitable letter to comply with the terms of offer such as appointment of trustee, creation of security etc. on the above lines.
(e) Rating : The Group recommends that the extant regulations of SEBI in regard to rating of all debt instruments in public offers would be made applicable to private placement also. This stipulation will also apply to preference shares which are redeemable after 18 months.
(f) Listing : Currently, there is a lot of flexibility regarding listing required by banks in private placement issues. However, the Group recommends that listing of companies should be insisted upon, ( exceptions, if any, to this rule shall be provided in the Investment Policy of the banks) which would in due course help develop secondary market. The advantage of listing would be that the listed companies would be required to disclose information periodically to the Stock Exchanges which would also help develop the secondary markets by way of investor information. In fact, SEBI has advised all the Stock Exchanges that all listed companies should publish unaudited financial results on a quarterly basis and that they should inform the Stock Exchanges immediately of all events which would have a bearing on the performance/operations of the company as well as price sensitive information.
(g) Security / documentation : To ensure that the documentation is completed and security is created in time, the Group has made recommendations which is contained in this model offer document. It may be noted that in case of delay in execution of Trust Deed and Charge documents, the company will refund the subscription with agreed rate of interest or will pay penal interest of 2% over the coupon rate till these conditions are complied with at the option of the bank. Moreover, Principal Directors of the company will have to agree to indemnify the bank for any loss that may be suffered by the bank on account of the subscription to the debt issue during the period of 6 months (or extended period) pending creation of security.
Annexure IV
Para 1.2.11
Guidelines on investments by banks in non-SLR investment portfolio by banks- definitions
1. With a view to imparting clarity and to ensure that there is no divergence in the implementation of the guidelines, some of the terms used in the guidelines on non-SLR investments are defined below.
2. A security will be treated as rated if it is subjected to a detailed rating exercise by an external rating agency in India which is registered with SEBI and is carrying a current or valid rating. The rating relied upon will be deemed to be current or valid if
i) The credit rating letter relied upon is not more than one month old on the date of opening of the issue, and
ii) The rating rationale from the rating agency is not more than one year old on the date of opening of the issue, and
iii) The rating letter and the rating rationale is a part of the offer document.
iv) In the case of secondary market acquisition, the credit rating of the issue should be in force and confirmed from the monthly bulletin published by the respective rating agency.
Securities which do not have a current or valid rating by an external rating agency would be deemed as unrated securities.
3. The investment grade ratings awarded by each of the external rating agencies operating in India would be identified by the IBA/ FIMMDA. These would also be reviewed by IBA/ FIMMDA at least once a year.
4. A �listed� security is a security which is listed in a stock exchange. If not so, it is an �unlisted� security.
Annexure V
Para 1.2.26
Prudential guidelines on management of the non-SLR investment portfolio by banks � Disclosures requirements
Banks should make the following disclosures in the �Notes on Accounts� of the balance sheet in respect of their non-SLR investment portfolio, with effect from the financial year ending 31 March 2004.
i) Issuer composition of Non SLR investments
(Rs. in crore)
Sl.No
1 |
Issuer
2 |
Amount
3 |
Extent of private placement
4 |
Extent of 'below investment grade' securities
5 |
Extent of 'unrated' securities
6 |
Extent of 'unlisted' securities
7 |
| 1 |
PSUs |
|
|
|
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|
| 2 |
FIs |
|
|
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| 3 |
Banks |
|
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|
|
|
| 4 |
Private Corporates |
|
|
|
|
|
| 5 |
Subsidiaries / Joint ventures |
|
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|
|
| 6 |
Others |
|
|
|
|
|
| 7 |
Provision held towards depreciation |
|
XXX |
XXX |
XXX |
XXX |
| |
Total * |
|
|
|
|
|
NOTE: 1. * Total under column 3 should tally with the total of investments included under the following categories in Schedule 8 to the balance sheet:
a. Shares
b. Debentures & Bonds
c. Subsidiaries/ joint ventures
d. Others
2. Amounts reported under columns 4, 5, 6 and 7 above may not be mutually exclusive.
ii) Non performing Non-SLR investments
| Particulars |
Amount (Rs. Crore) |
| Opening balance |
|
| Additions during the year since 1st April |
|
| Reductions during the above period |
|
| Closing balance |
|
| Total provisions held |
|
Annexure VI
Para 1.3.1
RETURN/STATEMENT NO. 9
Proforma Statement showing the position of Reconciliation of Investment
Account as on 31st March
Name of the bank/ Institution : _____________________________________
(Face value Rs. in crore)
| Particulars of securities |
General Ledger Balance |
SGL Balance |
BRs held |
SGL forms held |
Actual scrips held |
Outstanding deliveries |
| As per PDO books |
As per bank�s/ institution�s books |
| 1. |
2. |
3. |
4. |
5. |
6. |
7. |
8. |
| I. Central Government |
|
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|
| II. State Government |
|
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| III. Other approved securities |
|
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| IV. Public Sector bonds |
|
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| V. Units of UTI (1964) |
|
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|
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| VI. Others (Shares & debentures etc.) |
|
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|
|
|
|
|
| TOTAL : |
|
|
|
|
|
|
|
Note : Similar statements may be furnished in respect of PMS client�s Accounts and other constituents� Accounts (including Brokers). In the case of PMS/other constituents� accounts, the face value and book value of securities appearing in the relevant registers of the bank should be mentioned under Column 2.
Signature of the Authorised Official
with the Name and Designation. General instructions for compiling reconciliation statement
a) Column - 2 (GL balances)
It is not necessary to give complete details of securities in the format. Only aggregate amount of face value against each category may be mentioned. The corresponding book value of securities may be indicated in bracket under the amount of face value of securities under each category.
b) Column - 3 and 4 (SGL balances)
In the normal course balances indicated against item three and four should agree with each other. In case of any difference on account of any transaction not being recorded either in PDO or in the books of the bank this should be explained giving full details of each transaction.
c) Column - 5 (BRs held)
If the bank is holding any BRs for purchases for more than 30 days from the date of its issue, particulars of such BRs should be given in a separate statement.
d) Column - 6 (SGL forms held)
Aggregate amount of SGL forms received for purchases which have not been tendered with Public Debt Office should be given here.
e) Column - 7
Aggregate amount of all scrips held in the form of bonds, letters of allotments, subscription receipts as also certificates of entries in the books of accounts of the issuer (for other than government securities), etc. including securities which have been sold but physical delivery has not been given should be mentioned.
f) Column - 8 (outstanding deliveries)
This relates to BRs issued by the bank, where the physicals/scrips have not been delivered but the balance in General Ledger has been reduced. If any BR issued is outstanding for more than thirty days the particulars of such BRs may be given in a separate list indicating reasons for not affecting the delivery of scrips.
g) General
Face value of securities indicated against each item in column two should be accounted for under any one of the columns from four to seven. Similarly, amount of outstanding deliveries (BRs issued) which has been indicated in column eight will have to be accounted for under one of the columns four to seven. Thus the total of columns two and eight should tally with total of columns four to seven.
Annexure VII
Para 4.5.5 Disclosures
The following disclosures should be made by banks in the �Notes on Accounts� to the Balance Sheet.
(Rs. In crore)
| |
Minimum outstandingduring the year |
Maximum outstanding during the year |
Daily Average outstanding during the year |
As on March 31 |
| Securities sold under repos |
|
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|
|
| Securities purchased under reverse repos |
|
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|
Annexure VIII
Para 4.5.6
Illustrative examples for uniform accounting of Repo / Reverse repo transactions
A. Repo/ Reverse Repo of Coupon bearing security
1. Details of Repo in a coupon bearing security:
| Security offered under Repo |
11.43% 2015 |
|
| Coupon payment dates |
7 August and 7 February |
|
| Market Price of the security offered under Repo (i.e. price of the security in the first leg) |
Rs.113.00 |
(1) |
| Date of the Repo |
19 January, 2003 |
|
| Repo interest rate |
7.75% |
|
| Tenor of the repo |
3 days |
|
| Broken period interest for the first leg* |
11.43%x162/360x100=5.1435 |
(2) |
| Cash consideration for the first leg |
(1) + (2) = 118.1435 |
(3) |
| Repo interest** |
118.1435x3/365x7.75%=0.0753 |
(4) |
| Broken period interest for the second leg |
11.43% x 165/360x100=5.2388 |
(5) |
| Price for the second leg |
(3)+(4)-(5) = 118.1435 + 0.0753 - 5.2388 = 112.98 |
(6) |
| Cash consideration for the second leg |
(5)+(6) = 112.98 + 5.2388 = 118.2188 |
(7) |
* Computation of days based on 30/360 day count convention
** Computation of days based on Actual/365 day count convention applicable to money market instruments
2. Accounting for seller of the security
We assume that the security was held by the seller at the book value (BV) of Rs.120.0000
First leg Accounting
| |
Debit |
Credit |
| Cash Repo Account |
118.1435 |
120.0000(Book value) |
| Repo Price Adjustment account |
7.0000 (Difference between BV & repo price) |
|
| Repo Interest Adjustment account |
|
5.1435 |
Second Leg Accounting
| |
Debit |
Credit |
| Repo AccountRepo Price Adjustment account |
120.0000 |
7.02(the difference between the BV and 2nd leg price) |
| Repo Interest Adjustment accountCash account |
5.2388 |
118.2188 |
The balances in respect of the Repo Price Adjustment Account and Repo Interest Adjustment Account at the end of the second leg of repo transaction are transferred to Repo Interest Expenditure Account. In order to analyse the balances in these accounts, the ledger entries are shown below :
Repo Price Adjustment account
| Debit |
Credit |
| Difference in price for the 1st leg |
7.00 |
Difference in price for the 2nd leg |
7.02 |
| Balance carried forward to Repo Interest Expenditure account |
0.02 |
|
|
| Total |
7.02 |
Total |
7.02 |
Repo Interest Adjustment account
| Debit |
Credit |
| Broken period interest for the 2nd leg |
5.2388 |
Broken period interest for the 1st leg |
5.1435 |
| |
|
Balance carried forward to Repo Interest Expenditure account |
0.0953 |
| Total |
5.2388 |
Total |
5.2388 |
Repo Interest Expenditure Account
| Debit |
Credit |
| Balance from Repo Interest Adjustment account |
0.0953 |
Balance from Repo Price Adjustment account |
0.0200 |
| |
|
Balance carried forward to P & L a/c. |
0.0753 |
| Total |
0.0953 |
Total |
0.0953 |
3. Accounting for buyer of the security
When the security is bought, it will bring its book value with it. Hence market value is the book value of the security.
First leg Accounting:
| |
Debit |
Credit |
| Reverse Repo Account |
113.0000 |
|
| Reverse Repo Interest Adjustment account |
5.1435 |
|
| Cash account |
|
118.1435 |
Second Leg Accounting
| |
Debit |
Credit |
| Cash account |
118.2188 |
|
| Reverse Repo Price Adjustment account(Difference between the 1st and 2nd leg prices) |
0.0200 |
|
| Reverse Repo account |
|
113.0000 |
| Reverse Repo Interest Adjustment account |
|
5.2388 |
The balances in respect of the Reverse Repo Interest Adjustment Account and Reverse Repo Price adjustment account at the end of the second leg of reverse repo in these accounts are transferred to Repo Interest Income Account. In order to analyse the balances in these two accounts, the ledger entries are shown below:
Reverse Repo Price Adjustment Account
| Debit |
Credit |
| Difference in price of 1st & 2nd leg |
0.0200 |
Balance to Repo Interest Income a/c. |
0.0200 |
| Total |
0.0200 |
Total |
0.0200 |
Reverse Repo Interest Adjustment Account
| Debit |
Credit |
| Broken period interest for the 1st leg |
5.1435 |
Broken period interest for the 2nd leg |
5.2388 |
| Balance carried forward to Repo Interest Income Account |
0.0953 |
|
|
| Total |
5.2388 |
Total |
5.2388 |
Reverse Repo Interest Income Account
| Debit |
Credit |
| Difference between the 1st & 2nd leg prices |
0.0200 |
Balance from Reverse Repo Interest Adjustment account |
0.0953 |
| Balance carried forward to P & L account |
0.0753 |
|
|
| Total |
0.0953 |
Total |
0.0953 |
4. Additional accounting entries to be passed on a Repo / Reverse Repo transaction on a coupon bearing security, when the accounting period is ending on an intervening day.
Transaction Leg
� |
1st leg |
End of accounting period |
2nd leg |
| Dates � |
19 Jan 03 |
21 Jan 03* |
22 Jan 03 |
The difference in the clean price of the security between the first leg and the second leg should be apportioned upto the Balance Sheet date and should be shown as Repo Interest Income / Expenditure in the books of the seller / buyer respectively and should be debited / credited as an income / expenditure accrued but not due. The balances under Income / expenditure accrued but not due should be taken to the balance sheet
The coupon accrued by the buyer should also be credited to the Repo Interest Income account. No entries need to be passed on " Repo / Reverse Repo price adjustment account and Repo / Reverse repo interest adjustment account" . The illustrative accounting entries are shown below:
a) Entries in Seller�s books on January 21, 2003
| Account Head |
Debit |
Credit |
| Repo Interest Income account [ Balances under the account to be transferred to P & L] |
|
0.0133 ( Notional credit balance 0.0133 in the Repo Price Adjustment Account by way of apportionment of price difference for two days i.e. upto the balance sheet day) |
| Repo interest Income accrued but not due |
0.0133 |
|
*21 January, 2003 is assumed to be the balance sheet date
b) Entries in Seller�s books on January 21, 2003
| Account Head |
Debit |
Credit |
| Repo interest income |
0.0133 |
|
| P & L a/c |
|
0.0133 |
c) Entries in Buyer's Books on January 21, 2003
| Account Head |
Debit |
Credit |
| Repo interest income accrued but not due |
0.0502 |
|
| Repo Interest Income account [Balances under the account to be transferred to P & L] |
|
0.0502 (Interest accrued for 3 days of Rs. 0.0635* - Apportionment of the difference in the clean price of Rs. 0.0133) |
*For the sake of simplicity the interest accrual has been considered for 2 days.
d) Entries in Buyer's Books on January 21, 2003
| Account Head |
Debit |
Credit |
| Repo interest income account |
0.0502 |
|
| P& L a/c |
|
0.0502 |
The difference between the repo interest accrued by the seller and the buyer is on account of the accrued interest forgone by the seller on the security offered for repo.
B. Repo/ Reverse Repo of Treasury Bill
1. Details of Repo on a Treasury Bill
| Security offered under Repo |
GOI 91 day Treasury Bill maturing on 28 February, 2003 |
|
| Price of the security offered under Repo |
Rs.96.0000 |
(1) |
| Date of the Repo |
19 January, 2003 |
|
| Repo interest rate |
7.75% |
|
| Tenor of the repo |
3 days |
|
| Total cash consideration for the first leg |
96.0000 |
(2) |
| Repo interest |
0.0612 |
(3) |
| Price for the second leg |
(2)+(3) = 96.0000 + 0.0612 = 96.0612 |
|
| Cash consideration for the 2nd leg |
96.0612 |
|
2. Accounting for seller of the security
We assume that the security was held by the seller at the book value (BV) of Rs.95.0000
First leg Accounting:
| |
Debit |
Credit |
| CashRepo Account |
96.0000 |
95.0000 (Book value) |
| Repo Price adjustment account |
|
1.0000 (Difference between BV & repo price ) |
Second Leg Accounting
| Repo AccountRepo Price adjustment account |
95.00001.0612(the difference between the BV and 2nd leg price) |
|
| Cash account |
|
96.0612 |
The balances in respect of the Repo Price Adjustment Account at the end of the second leg of repo transaction are transferred to Repo Interest Expenditure Account. In order to analyse the balances in this account, the ledger entries are shown:
Repo Price Adjustment account
| Debit |
Credit |
| Difference in price for the 2nd leg |
1.0612 |
Difference in price for the 1st leg |
1.0000 |
| |
|
Balance carried forward to Repo Interest Expenditure account |
0.0612 |
| Total |
1.0612 |
Total |
1.0612 |
Repo Interest Expenditure Account
| Debit |
Credit |
| Balance from Repo Price Adjustment account |
0.0612 |
Balance carried forward to P & L a/c. |
0.0612 |
| Total |
0.0612 |
Total |
0.0612 |
The Seller will continue to accrue the discount at the original discount rate during the period of the repo.
3. Accounting for buyer of the security
When the security is bought, it will bring its book value with it. Hence market value is the book value of the security.
First leg Accounting:
| |
Debit |
Credit |
| Reverse Repo Account |
96.0000 |
|
| Cash account |
|
96.0000 |
Second Leg Accounting
| |
Debit |
Credit |
| Cash account |
96.0612 |
|
| Repo Interest Income account(Difference between the 1st and 2nd leg prices) |
|
0.0612 |
| Reverse Repo account |
|
96.0000 |
The Buyer will not accrue for the discount during the period of the repo.
4. Additional accounting entries to be passed on a Repo / Reverse Repo transaction on a Treasury Bill, when the accounting period is ending on an intervening day.
Transaction Leg
� |
1st leg |
B/S date |
2nd leg |
| Date � |
19 Jan.03 |
21 Jan.03* |
22 Jan.03 |
*21 January, 2003 is assumed to be the balance sheet date
a. Entries in Seller�s books on January 21, 2003
| Account Head |
Debit |
Credit |
| Repo Interest Expenditure account (after apportionment of repo interest for two days) [ Balances under the account to be transferred to P & L] |
0.0408 |
|
| Repo interest expenditure accrued but not due |
|
0.0408 |
b. Entries in Seller�s books on January 21, 2003
| Account Head |
Debit |
Credit |
| Repo interest expenditure account |
|
0.0408 |
| P & L a/c |
0.0408 |
|
c. Entries in Buyer's Books on January 21, 2003
| Account Head |
Debit |
Credit |
| Repo interest income accrued but not due |
0.0408 |
|
| Repo Interest Income account [Balances under the account to be transferred to P & L] |
|
0.0408 |
d. Entries in Buyer's Books on January 21, 2003
| Account Head |
Debit |
Credit |
| Repo interest income account |
0.0408 |
|
| P & L a/c |
|
0.0408 |
Appendix
Master Circular on Classification, Valuation and Operation of Investment Portfolio
List of Circulars consolidated by the Master Circular
| No |
Circular No. |
Date |
Relevant para no. of the circular |
Subject |
Para no. of the master circular |
| 1 |
DBOD.No.Dir.BC.42/C.347-87 |
15 April 1987 |
2.B(ii), (iii) and 3,4 |
Buy-back arrangementsin Government & Other Approved Securitiesentered into by commercial banks |
1.2.1 (i) (e) (f) (g) |
| 2 |
DBOD.No.Dir.BC.127/C.347(PSB)-88 |
11 April 1988 |
1,3 |
Buy-back arrangementsin Government & Other Approved Securitiesentered into by commercial banks |
1.2 .1 (i) (f), (iii) (a) & (b) |
| 3 |
DBOD.No.FSC.BC.69/C.469-90/91 |
18 Jan 1991 |
1,2,4 |
Portfolio Management on behalf of clients |
1.3. 3 |
| 4 |
DO.DBOD.No.FSC.46/C.469-91/92 |
26 July 1991 |
4(i),(ii),(iii),(iv),(v),(iv) |
Investment portfolio of banks-Transaction in securities |
1.2 (i) |
| 5 |
DBOD.No.FSC.BC.143A/24.48.001/91-92 |
20 June1992 |
3(I), 3(I)-(ii)-(iii)-(iv)-(v)-(xi)-(xii)-(xvi)-(xvii), 3(II),3(III),3(V)-(i)-(ii)-(iii),(3) & (4) |
Investment portfolio of banks-Transaction in securities |
1.2 (ii),(iii) & (iv), 1.2.2,1.2.3, 1.2.5, 1.2.61.2.7 |
| 6 |
DBOD.No.FSC.BC.11/24.01.009/92-93 |
30 July 1992 |
3,4,5,6 |
Portfolio Management on behalf of clients |
1.3.3 |
| 7 |
DBOD.No.FMC/BC/17/24.48.001.92/93 |
19 Aug 1992 |
2 |
Investment portfolio of banks-Transaction in securities |
1.3.2 |
| 8 |
DBOD.FMC.BC.62/27.02.001/92-93 |
31 Dec 1992 |
1 |
Investment portfolio of banks-Transaction in securities |
1.2.6 |
| 9 |
DBOD.No.FMC.1095/27.01.002/93 |
15 April 1993 |
1 & enclosed format |
Investment portfolio of banks- Reconciliation of holdings |
1.3.1 & Annexure-VI |
| 10 |
DBOD.No.FMC.BC.141/27.02.006/93/94 |
19 July 1993 |
Annexure |
Investment portfolio of banks-Transaction in securities-Aggregate contract limit for individual brokers-Clarifications |
Annexure-II |
| 11 |
DBOD.No.FMC.BC.1/27.02.001/93-94 |
10 Jan 1994 |
1 |
Investment portfolio of banks-Transaction in securities-Bouncing of SGL transfer forms- Penalties to be imposed. |
1.2.2 |
| 12 |
DBOD.No.FMC.73/27.07.001/94-95 |
7 June 1994 |
1,2 |
Acceptance of deposits under Portfolio Management Scheme |
1.3.3 |
| 13 |
DBOD.No.FSC.BC.130/24.76.002/94-95 |
15 Nov 1994 |
1 |
Investment portfolio of banks-Transaction in securities-BankReceipts(BRs) |
1.2.3 |
| 14 |
DBOD.No.FSC.BC.129/24.76.002/94-95 |
16 Nov 1994 |
2 & 3 |
Investment portfolio of banks-Transaction in securities-Role of brokers |
1.2.6 |
| 15 |
DBOD.No.FSC.BC.142/24.76.002/94-95 |
9 Dec 1994 |
1& 2 |
Investment portfolio of banks-Transaction in securities-Role of brokers |
1.2.6 |
| 16 |
DBOD.No.FSC.BC.70/24.76.002/95-96 |
8 June 1996 |
2 |
Retailing of Government Securities |
1.2.4 |
| 17 |
DBOD.No.FSC.BC.71/24.76.001/96 |
11 June 1996 |
1 |
Investment portfolio of banks-Transaction in securities |
1.2.2 |
| 18 |
DBOD.No.BC.153/24.76.002/96 |
29 Nov 1996 |
1 |
Investment portfolio of banks-Transaction in securities |
1.2.6 |
| 19 |
DBOD. BP. BC. 9/ 21.04.048/98 |
29 Jan 1997 |
3 |
Prudential norms � capital adequacy, income recognition, asset classification and provisioning. |
5.1 (iii) & (iv) |
| 20 |
DBOD.BP. BC. 32/ 21.04.048/ 97 |
12 April 1997 |
1&2 |
Prudential norms � capital adequacy, income recognition, asset classification and provisioning |
5.1 (i) &(ii) |
| 21 |
DBOD.FSC.BC.129/24.76.002-97 |
22 Oct 1997 |
1 |
Retailing of Government Securities |
1.2.4 |
| 22 |
DBOD.No.BC.112/24.76.002/1997 |
14 Oct 1997 |
1 |
Investment portfolio of banks- Transaction in securities-Role of brokers |
1.2.6 |
| 23 |
DBOD.BP. BC. 75/ 21.04.048/ 98 |
4 Aug 1998 |
All |
Acquisition of Government and other approved securities - Broken Period Interest, - Accounting Procedure |
5.2 |
| 24 |
DBS.CO.FMC.BC.18/22.53.014/99-2000 |
28 Oct 1999 |
2,3,4 &5 |
Investment portfolio of banks-Transaction in securities |
1.2.2 |
| 25 |
DBOD.No.FSC.BC.26/24.76.002/2000 |
6 Oct 2000 |
2 |
Sale of Government securities allotted in the auctions for Primary issues |
1.2(i)(b) |
| 26 |
DBOD.BP. BC. 32/ 21.04.048/2000- 01 |
16 Oct 2000 |
All |
Guidelines on classification and valuation of investments. |
2 & 3 |
| 27 |
DBOD.FSC.BC.No.39/24.76.002/2000 |
25 Oct 2000 |
1 |
Investment portfolio of banks-Transaction in securities-Role of brokers |
1.2.6 |
| 28 |
Dir.BC.107/13.03.00/2000-01 |
19 April 2001 |
6 |
Monetary and Credit Policy for the year 2000-2002 � Interest Rate Policy |
5.3 |
| 29 |
DBOD.BP. BC. 119/ 21.04.137/ 2000- 2001 |
11 May 2001 |
Annex- 5&12 |
Bank financing of equities and investments in shares - Revised guidelines |
1.2, 1.2.51.3, 1.3.1 |
| 30 |
DBOD.BP. BC. 127/ 21.04.048/2000- 01 |
7 June 2001 |
All |
Non- SLR Investments of Banks |
1.2.8Annexure- III |
| 31 |
DBOD.BP.BC.61/21.04.048/2001-02 |
Jan 25, 2002 |
All |
Guidelines for investments by banks/Fis and Guidelines for financing of restructured accounts by banks/FIs |
1.2.8 (iv) |
| 32 |
DBOD.No.FSC.BC.113/24.76.002/2001-02 |
June 7 2002 |
All |
On Investment Portfolio of Banks Transaction in Govt. Securities |
1.3.4 |
| 33 |
DBS.CO.FMC.BC.7/ 22.53.014/ 2002-03 |
Nov 7,2002 |
Para 2 |
Operation of investment portfolio by banks- submission of concurrent audit reports by banks |
1.2.7(c) |
| 34 |
DBOD.No.FSC. BC.90/24.76.002/2002-03 |
March 31 2003 |
All |
Ready Forward Contracts |
1.2.1(i), (ii) and (iii) |
| 35 |
IDMC.3810/11.08.10/2002-03 |
March 24 2003 |
All |
Guidelines for uniform accounting for Repo / Reverse Repo transactions |
4, Annexure VII & Annexure VIII |
| 36 |
DBOD.BP.BC. 4/ 21.04.141/03-04 |
Nov 12 2003 |
All |
Prudential guidelines on banks� investment in non-SLR securities |
1.2.8 Annexure IV, V |
| 37 |
DBOD.BP.BC. 4/ 21.04.141/03-04 |
Dec 10 2003 |
All |
Prudential guidelines on banks� investment in non-SLR securities |
1.2.8 |
| 38 |
DBOD.FSC.BC. 59/ 24.76.002 /03-04 |
Dec 26 2003 |
All |
Sale of Government securities allotted in the auctions for primary issues on the same day |
Annexure I |
| 39 |
IDMD.PDRS.05/ 10.02.01/ 2003-04 |
Mar 29 2004 |
3,4,6 & 7 |
Transactions in Government Securities |
1.2(i)(a) |
| 40 |
IDMD.PDRS/ 4777/ 10.02.01/ 2004-05 |
May 11 2005 |
3 |
Sale of securities allotted in primary issues |
1.2(i)(b) |
| 41 |
IDMD.PDRS/ 4779/ 10.02.01/ 2004-05 |
May 11 2005 |
2,3,4,5 |
Ready forward contracts |
1.2.1(b),1.2.1(c) |
| 42 |
IDMD.PDRS/ 4783/ 10.02.01/ 2004-05 |
May 11 2005 |
3 |
Government securities transactions � T+1 settlement |
1.2(i)(c) |
| 43 |
DBOD.FSC.BC. 28/ 24.76.002 /2004-05 |
Aug 12 2004 |
2 |
Transactions in Government securities |
1.2(i)(a) |
| 44 |
DBOD. BP.BC. 37/21.04.141/ 2004-05 |
Aug 13 2004 |
2(b) of Annex |
Prudential norms � State Government guaranteed exposures |
3.5.2 |
| 45 |
DBOD.Dir.BC.32/ 13.07.05/ 2004-05 |
Aug 17 2004 |
2 |
Dematerialisation of banks� investment in equity |
5.3 |
| 46 |
DBOD. BP.BC. 37/21.04.141/ 2004-05 |
Sep 2 2004 |
1(i) &(ii) |
Prudential norms on classification of investment portfolio of banks |
2.1(ii) &(iii) |
| 47 |
DBOD.FSD.BC.No.31/24.76.002/2005-06 |
Sep 1 2005 |
2, 3 |
NDS-OM � Counterparty Confirmation |
1.2.5 (i)(c) |
| 48 |
DBOD.BP.BC. 38 / 21.04.141/ 2005-06 |
Oct 102005 |
All |
Capital Adequacy - Investment Fluctuation Reserve |
3.4 |
| 49 |
IDMD.No.03/11.01.01(B)/2005-06 |
Feb 28 2006 |
2,3,4,5 |
Secondary Market transactions in Government Securities- Intra day short selling |
1.2 (i) (a) |
| 50 |
IDMD.No. 3426 /11.01.01 (D)/ 2005-06 |
May 3 2006 |
All |
�When Issued� transactions in Central Government Securities� |
1.2 (i) (a) |
|