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On October 16, 2023, the Reserve Bank of India (RBI) released a circular, designated RBI/2023-24/68, which offers guidance and clarification on the reporting procedures for reverse repo transactions by commercial banks. Given that the reverse repo mechanism is pivotal in India’s monetary policy framework and liquidity management, consistent and accurate reporting is of paramount importance.
This article aims to shed light on the new clarifications and delve deeper into the implications and rationale behind the reporting methods for reverse repo transactions.
Reverse repo, or reverse repurchase agreements, are arrangements where the RBI borrows money from banks for a short duration. This process aids in controlling the amount of money in circulation, thereby having an effect on short-term interest rates. To ensure financial transparency, accountability, and effective liquidity management, the RBI mandates that banks report these transactions in Form ‘A’ Return, which is detailed in the Master Direction concerning CRR and SLR.
The latest circular serves as a reminder and further clarification to banks regarding the exact manner of reporting reverse repo transactions in Form ‘A’ Return. It primarily segments the reporting based on the counterpart (i.e., banks vs. non-banks) and the duration of the original tenor.
With the Indian financial market becoming increasingly sophisticated, and the tools to manage liquidity evolving in tandem, accurate, and consistent reporting becomes imperative. The recent circular by the RBI on reverse repo transactions underscores this need.
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