Summary of Circular No. IDMD/4135/11.08.43/2009-10 Guidelines for ing of Repo and Reverse Repo Transactions 1

Definition of "Repo": An instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.

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Definition of "Reverse Repo": An instrument for lending funds by purchasing securities with an agreement to resale the securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.

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Applicable to market repo transactions in govt and corporate debt securities.

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Not applicable to repo/reverse repo transactions with RBI under LAF (Liquidity Adjustment Facility) Investment of any of the three kinds (Held for Trading, Available for Sale or Held to Matuirity) may be used for repo transactions.

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As per RBI Circular IDMC.3810/11.08.10/2002-03, Repo/Reverse Repo transations were considered as outright sale and outright purchase as per market conventions prevailing then.

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However, as per the present circular: Repo transactions should be reflected in s as borrowing transaction with the underlying securities offered as collateral for the borrowings.

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Accordingly, in the borrower's (seller of securities) books, the securities sold shall be continued to be shown under investments during the repo period (as the seller has economic interest in the securities sold). The repo seller continues to accrue interest on the repo securities. The Repo Buyer shall not accrue such interest. Following are the entries:

ENTRIESEntries to be made at the time of repo transaction (Fisrt leg) in repo seller's books: (For dated coupon bearing securities) Entry: 1Cash/Bank A/c Dr To Repo A/c Entry: 2Securities Receivable under Repo A/c (Contra) Dr. To Securities Sold under Repo A/c (Contra) Both the enties are to be made at market rate + accrued broken period interest till the date of transaction from the last coupon payment date at coupon rate. Entries to be made at the time of repo reversal (second leg) in repo seller's books: Entry: 3Repo A/c Dr. (at the same value as in entry no. 1) Repo Expenditure A/c Dr. (Repo interest for the repo transation period at repo rate) To Cash/Bank A/c Entry: 4Securities Sold under Repo A/c (Contra) Dr. (at the same value as in entry no. 2) To Securities Receivable under Repo A/c (Contra) 9

In the books of the lender (purchaser of securites), the securities purchased under repo transactions shall not be treated as investment and shall be shown separately in a sub head

Entries to be made at the time of repo transaction (Fisrt leg) in repo buyer's (Lender's) books: Entry: 1Reverse Repo A/c Dr To Cash / Bank A/c Entry: 2Securities Purchased under Reverse Repo A/c (Contra) Dr. To Securities Deliverable under Reverse Repo A/c (Contra) Both the enties are to be made at market rate + accrued broken period interest till the date of transaction from the last coupon payment date at coupon rate Entries to be made at the time of repo reversal (second leg) in repo seller's books: Entry: 3Cash / Bank A/c Dr. (at the same value as in entry no. 1)

To Reverse Repo Interst Income A/c (Repo interest for the repo transation period at repo rate) To Reverse Repo A/c Entry: 3 Securities Deliverable under Reverse Repo A/c (Contra) Dr. (at the same value as in entry no. 2) To Securities Purchased under Reverse Repo A/c (Contra) In case of treasury bills the transaction is recorded at only market value and no interest is accrued on the same for the broken period. Note: However for repo transactions in non coupon bearing securites the transaction will be recorded at the price of the securities under repo and no broken period interest is to be added in to the same. 10

In case the Repo Coupon date falls withing the repo period and the repo buyer receives any interest, the same should be ed on to the repo seller immediately.

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If the Balance sheet date falls during the tenure of Repo, then provision of interest payable / receivable can be made in the respective books and reveresed on the next day.

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The balances in the Repo Interest Expenditure and Reverse Repo Interest Income A/c are to be transferred to Profit & Loss at the balance sheet date.

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Marking to Market: The repo seller shall continue to mark to market the securities sold under repo transaction depending on the classification of the securites.

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Disclosure in the NTA to be made as per the circular for Securities Sold under Repo and Securities purchased under Repo with sub classification under each head as Government Securities and Corporate Debt Securities.

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Classification of the Repo and Reverse Repo related ledger s under specific Schedules are specified in the circular.

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Treatment for CRR and SLR: Govt Securites: Funds borrowed under repo will be exempt from CRR/SLR and securities acquired under reverse repo shall be eligible for SLR. Corp Dept Securities: Amount borrowed by bank through repo shall be treated part of its Demand and Time Liabilities (DTL) and attract CRR / SLR.