Municipal Bonds Permitted in RBI Repo Transactions
Why focus: GS3 Economy — tests RBI Repo eligible collateral and municipal bond market mechanics. Classic conceptual monetary policy application.
In News
What Happened
Why It Matters
Background
History & Context
What Changed
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Eligible Collateral: BEFORE, repo collateral was primarily limited to instruments like government securities, listed corporate bonds, commercial papers, and certificates of deposit. NOW, municipal debt securities are officially permitted as eligible collateral.
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Risk Margins (Haircuts): BEFORE, no repo haircut framework existed for municipal bonds as they were ineligible for such transactions. NOW, municipal bonds pledged in repo operations carry a mandated minimum haircut of 2 percent.
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Eligible Participants: BEFORE, unlisted companies faced stricter hurdles in participating in repo markets. NOW, unlisted companies holding special Government-issued securities are formally recognized as eligible participants to transact using those specific securities as collateral.
Prelims Angle
NCERT Connection
Practice Questions
Q1
Correct Statement(s)With reference to the RBI's updated Master Direction on Repurchase Transactions (Repo) Directions, 2025, consider the following statements: 1. Municipal debt securities are now permitted as eligible collateral for repo transactions. 2. Municipal bonds pledged as collateral in repo transactions are subject to a minimum haircut of 2%. Which of the statements given above is/are correct?