Context:
The Reserve Bank of India (RBI) has expanded its STRIPS (Separate Trading of Registered Interest and Principal of Securities) framework to include State Government Securities (SGSs), aligning it with the existing facility for Central Government Securities (G-Secs). The move aims to boost liquidity, price discovery, and retail investor participation in the state bond market.
What is STRIPS?
STRIPS allows the principal and interest components of fixed-coupon securities to be traded separately as individual zero-coupon instruments. This promotes flexibility in trading and widens the investor base.
Key Highlights of the STRIPS Facility for State Bonds
- Eligible Securities Criteria:
- Fixed-coupon state government bonds only
- Residual maturity up to 14 years
- Outstanding issuance size of at least â‚ą10 billion (~$116.93 million)
- Must be SLR-eligible securities (Statutory Liquidity Ratio)
- Purpose & Benefits:
- Facilitates independent trading of interest and principal components
- Enhances market liquidity and pricing efficiency
- Offers banks and investors more options for portfolio and risk management
- Implementation:
- Introduced after consultations with state governments and market participants
- Effective immediately as per RBI’s circular
- Aligned with existing guidelines for central government STRIPS trading
