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RBI lists caveats for co-op banks planning to trade in gilts

BS Banking Bureau

The Reserve Bank of India has issued a set of dos and don'ts to co-operative banks that are interested in trade in government securities.

The central bank said co-operative banks should not be tempted by the high trading profits in the government security market and must put in place proper checks and balances before investing in government paper.

The RBI said co-operative banks are required to establish a proper risk management system as trading in the government security market is a risky affair. Second, it said it is necessary to delegate authority of sale and purchase to more than one person.

It said banks should follow a committee approach or at least two persons should be responsible for taking a decision on gilts trading. The central bank has also asked the banks to check whether the actual delivery is done following the deals contracted during the day, and if accounts are reconciled on the same day before the close of the business.

It is also pointed out that it is necessary to separate the dealing officer from the settlement and account officer. The RBI also said that bank should keep record of all the sale and purchase decision made which should be seen by the board at least once in a month.

The co-operative banks are also asked to maintain a record of SGL press release and facilitate counter-checking by their internal control systems.

The central bank has also expressed the intention of making available the negotiated delaying system trade watch screen on a separate website for public domain.

The co-operative banks should buy and sell securities through CSGL accounts with the same banks with whom they have a cash account so that delivery versus payment can be ensured by the custodian bank.

The central bank also said that the co-operative banks should insist the brokers for the identity of the counter-party and should do the settlement directly with the counter-party.

The RBI also stresses on building up the required infrastructure and educate the staffs on the government security market and the risk associated with it.

It also said that co-operative banks should check the SGL balance received from the custodian bank with the SLR statement sent to the central bank.

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