Fund Front Office

This sub department of Treasury division is responsible for management of Current Reserve Ratio.
Definition: Cash Reserve Ratio (CRR) In terms of Section 42 (1) of the Reserve Bank of India Act,
1934 the Reserve Bank, having regard to the needs of securing the monetary stability in the country,
prescribes the CRR for SCBs without any floor or ceiling rate .In others words is a specified minimum
fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash
or as deposits with the central bank. CRR is set according to the guidelines of the central bank of a
country.
Maintenance of CRR
At present, effective from the fortnight beginning February 09, 2013, the CRR is prescribed at 4.00 per
cent of a bank's total of DTL adjusted for the exemptions(NDTL)
Procedure for Computation of CRR
In order to improve cash management by banks, as a measure of simplification, a lag of one fortnight in
the maintenance of stipulated CRR by banks was introduced with effect from the fortnight beginning
November 06, 1999.
For Example
Maintenance of CRR on Daily Basis
With a view to providing flexibility to banks in choosing an optimum strategy of holding reserves
depending upon their intra fortnight cash flows, all SCBs are required to maintain minimum CRR
balances up to 70 per cent of the average daily required reserves for a reporting fortnight on all days of
the fortnight with effect from the fortnight beginning December 28, 2002.
For Example
No Interest Payment on Eligible Cash Balances maintained by SCBs with RBI under CRR
In view of the amendment carried out to RBI Act 1934, omitting sub-section (1B) of Section 42, the
Reserve Bank does not pay any interest on the CRR balances maintained by SCBs with effect from the
fortnight beginning March 31, 2007.





Penalties
From the fortnight beginning June 24, 2006, penal interest is charged as under in cases of default in
maintenance of CRR by SCBs :
(i) In case of default in maintenance of CRR requirement on a daily basis which is presently 70 per cent
of the total CRR requirement, penal interest will be recovered for that day at the rate of three per cent
per annum above the Bank Rate on the amount by which the amount actually maintained falls short of
the prescribed minimum on that day and if the shortfall continues on the next succeeding day/s, penal
interest will be recovered at the rate of five per cent per annum above the Bank Rate.
(ii) In cases of default in maintenance of CRR on average basis during a fortnight, penal interest will be
recovered as envisaged in sub-section (3) of Section 42 of Reserve Bank of India Act, 1934.
SCBs are required to furnish the particulars such as date, amount, percentage, reason for default in
maintenance of requisite CRR and also action taken to avoid recurrence of such default.













CRR in last 14 Years

Source:RBI



0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
CRR
CRR

Function of a Fund Manager

There are two basic functions of fund managers at front office
1) To avoid penalties by borrowing if there is shortage of cash below CRR requirement on daily
basis
2) To lend cash on daily basis if there is excess cash above CRR requirement on daily basis
For this pupose every bank has a current A/c with RBI for maintaining statuary CRR limit
Access to current A/c
To check whether there is shortage or excess cash as per stuatory limit, there are two options available
to the fund manager i.e.
1.E-Kuber
E-Kuber has enabled cooperative banks to be part of the ePayment revolution in India, as the
cooperative banks can hold direct accounts in RBI. Prior to eKuber, if a cooperative bank did not have a
branch in Mumbai, it was difficult to be a direct participant in ePayment platforms viz RTGS, NEFT, NCS
etc.
The other features of eKuber are:
Provision of a single account for each bank across the country, decentralised access to this
account from anywhere, anytime usage using the portal based services in a safe manner and the
ease of operations are some of the features of the e-Kuber which have been well received by
banks.
Government users can view their balances of all types including the Ways and Means
Advances, drawings, funds positions and the like all in a consolidated manner through the e-
Kuber so as to help then in better funds management.
The capability of consolidating revenue collections by banks through the e-Kuber offers the
potential for better flexibility for the Government in managing its finances apart from moving
over towards higher levels of electronic based banking
2.NG-RTGS
NDS

Types of Borrowing and lending done to maintain CRR
1.Croms-Clearing Repo order matching System
(CROMS) is an STP enabled anonymous Order Matching Platform launched by Clearcorp Dealing Systems
(India) Ltd on 27th January 2009 for facilitating dealing in Market Repos in all kinds of Government
Securities. It enables dealing in two kinds of Repos (1) Basket and (2) Special Repos.

For Example
If bank A borrows/lend from/to bank B lend/borrows then bank A has to deposit securities or vice versa
with Croms at the end of the day net securities will be credited to the concerned banks account.
2.CBLO- Collateralised Borrowing and Lending Obligation (CBLO)
Institutional framework
CCIL as a central counterparty offers a money market product approved by RBI known as
the Collateralised Borrowing and Lending Obligation (CBLO). The CBLO combines a
tradable repo and tripartite repo. Unlike a normal repo transaction, a CBLO is tradable. It is a
discounted instrument backed by gilts as collateral. Lenders of funds buy CBLOs. CBLO
balances are maintained in electronic book entry. CBLOs can be traded anonymously in the
market through a trading system known as the CBLO Dealing system.43
Participation
Membership of the CBLO segment is granted to NDS members and non NDS members. The
entities eligible for CBLO membership are nationalised banks, private banks, foreign banks,
cooperative banks, financial institutions, insurance companies, mutual funds, primary
dealers, non-banking financial companies (NBFCs), corporates, provident/pension funds etc.
Transactions handled
CCIL offers guaranteed settlement of transactions in CBLOs, both at trade level and at
redemption level on maturity. The market is mostly concentrated in overnight CBLOs.

System operating procedures
CBLOs can be settled either on a T+0 basis or on a T+1 basis. System operating hours are
based on the settlement schedule and on whether the trades are settled directly with RBI or
with settlement banks. Where the trades are settled through settlement banks, the system
operating hours are shorter.
Pricing
CCIL has prescribed transaction charges for trades in CBLO
3.Call/Notice/Term
These are unsecured and therefore available at higher rate of interest . The money market primarily
facilitates lending and borrowing of funds between banks and entities like Primary Dealers (PDs). Banks
and PDs borrow and lend overnight or for the short period to meet their short term mismatches in fund
positions. This borrowing and lending is on unsecured basis. Call Money is the borrowing or lending of
funds for 1day. Where money is borrowed or lend for period between 2 days and 14 days it is known as
Notice Money. And Term Money refers to borrowing/lending of funds for period exceeding 14 days.
The interest rates on such funds depends on the surplus funds available with lenders and the demand
for the same which remains volatile.
Counter Party Exposure Limit
This is the limit imposed by risk management team(Mid Office) of a treasury division for lending purpose
based on the creditworthieness of the party.
For Example
PNB can lend more to SBI then Dena Bank and this limit is decided and revised by ALCO(asset and
liability committee) of a bank







Statutory Liquidity Ratio
Consequent upon amendment to the Section 24 of the Banking Regulation Act, 1949 through the Banking Regulation
(Amendment) Act, 2007 replacing the Regulation (Amendment) Ordinance, 2007, effective January 23, 2007, the
Reserve Bank can prescribe the SLR for SCBs in specified assets. The value of such assets of a SCB shall not be
less than such percentage not exceeding 40 per cent of its total DTL in India as on the last Friday of the second
preceding fortnight as the Reserve Bank may, by notification in the Official Gazette, specify from time to time.
Reserve Bank has specified vide notification DBOD.No.Ret.32/12.02.001/2012-13 dated July 31, 2012 that w.e.f. the
fortnight beginning August 11, 2012 every SCB shall continue to maintain in India assets as detailed below, the value
of which shall not, at the close of business on any day, be less than 23 per cent on the total net demand and time
liabilities as on the last Friday of the second preceding fortnight valued in accordance with the method of valuation
specified by the Reserve Bank of India from time to time:
(a)Cash or
(b)Gold valued at a price not exceeding the current market price, or
(c) Investment in the following instruments which will be referred to as "Statutory Liquidity Ratio (SLR) securities":
(i) Dated securities issued up to May 06, 2011as listed in the Annex to Notification DBOD.No.Ret.91/12.02.001/2010-
11 dated May 09, 2011;
(ii) Treasury Bills of the Government of India;
(iii) Dated securities of the Government of India issued from time to time under the market borrowing programme and
the Market Stabilization Scheme;
(iv) State Development Loans (SDLs) of the State Governments issued from time to time under the market borrowing
programme; and
(v) Any other instrument as may be notified by the Reserve Bank of India.
Provided that the securities (including margin) referred to above, if acquired under the Reserve Bank- Liquidity
Adjustment Facility (LAF), shall not be treated as an eligible asset for this purpose.
Procedure for Computation of SLR
The procedure to compute total NDTL for the purpose of SLR under Section 24 (2) (B) of Banking Regulation Act,
1949 is broadly similar to the procedure followed for CRR. The liabilities mentioned under Section 1.11 will not form
part of liabilities for the purpose of SLR also. SCBs are required to include inter-bank term deposits / term borrowing
liabilities of all maturities in 'Liabilities to the Banking System'. Similarly, banks should include their inter-bank assets
of term deposits and term lending of all maturities in 'Assets with the Banking System' for computation of NDTL for
SLR purpose.
2.2 Classification and Valuation of Approved Securities for SLR
As regards classification and valuation of approved securities, banks may be guided by the instructions contained in
our Master Circular (as updated from time to time) on Prudential Norms for classification, valuation and operation of
investment portfolio by banks.
2.3 Penalties
If a banking company fails to maintain the required amount of SLR, it shall be liable to pay to RBI in respect of that
default, the penal interest for that day at the rate of three per cent per annum above the Bank Rate on the
shortfall and if the default continues on the next succeeding working day, the penal interest may be increased to a
rate of five per cent per annum above the Bank Rate for the concerned days of default on the shortfall.
2.4 Return in Form VIII (SLR)
i) Banks should submit to the Reserve Bank before 20th day of every month, a Return in Form VIII showing the
amounts of SLR held on alternate Fridays during immediate preceding month with particulars of their DTL in India
held on such Fridays or if any such Friday is a Public Holiday under the Negotiable Instruments Act, 1881, at the
close of business on preceding working day.
ii) Banks should also submit a statement as annexure to Form VIII Return giving daily position of (a) assets held for
the purpose of compliance with SLR, (b) the excess cash balances maintained by them with RBI in the prescribed
format, and (c) the mode of valuation of securities.
2.5 Correctness of Computation of DTL to be certified by Statutory Auditors
The Statutory Auditors should verify and certify that all items of outside liabilities, as per the banks books had been
duly compiled by the bank and correctly reflected under DTL/NDTL in the fortnightly/monthly statutory returns
submitted to Reserve Bank for the financial year.

SLR or G-SEC Desk in Treasury
Now Banks can invest in G-Sec in two ways:
1.Primary market(Auction)
2.Secondry Market
Primary Dealers in G-Sec desk, maintains SLR through investing in G-SEC either through Auction or trading in
Secondry markets
Primary Market
Government securities are issued through auctions conducted by the RBI. Auctions are conducted on the electronic
platform called the NDS Auction platform. Commercial banks, scheduled urban co-operative banks, Primary
Dealers (a list of Primary Dealers with their contact details is given in Annex 2), insurance companies and provident
funds, who maintain funds account (current account) and securities accounts (SGL account) with RBI, are members
of this electronic platform. All members of PDO-NDS can place their bids in the auction through this electronic
platform. All non-NDS members including non-scheduled urban co-operative banks can participate in the primary
auction through scheduled commercial banks or Primary Dealers. For this purpose, the urban co-operative banks
need to open a securities account with a bank / Primary Dealer such an account is called a Gilt Account. A Gilt
Account is a dematerialized account maintained by a scheduled commercial bank or Primary Dealer for its constituent
(e.g., a non-scheduled urban co-operative bank).
The RBI, in consultation with the Government of India, issues an indicative half-yearly auction calendar which
contains information about the amount of borrowing, the tenor of security and the likely period during which auctions
will be held. A Notification and a Press Communique giving exact particulars of the securities, viz., name, amount,
type of issue and procedure of auction are issued by the Government of India about a week prior to the actual date of
auction. RBI places the notification and a Press Release on its website (www.rbi.org.in) and also issues an
advertisement in leading English and Hindi newspapers. Information about auctions is also available with the select
branches of public and private sector banks and the Primary Dealers.
Prior to introduction of auctions as the method of issuance, the interest rates were administratively fixed by the
Government. With the introduction of auctions, the rate of interest (coupon rate) gets fixed through a market based
price discovery process.
4.1 An auction may either be yield based or price based.
i. Yield Based Auction: A yield based auction is generally conducted when a new Government security is
issued. Investors bid in yield terms up to two decimal places (for example, 8.19 per cent, 8.20 per cent, etc.).
Bids are arranged in ascending order and the cut-off yield is arrived at the yield corresponding to the notified
amount of the auction. The cut-off yield is taken as the coupon rate for the security. Successful bidders are
those who have bid at or below the cut-off yield. Bids which are higher than the cut-off yield are rejected. An
illustrative example of the yield based auction is given below:
Yield based auction of a new security
Maturity Date: September 8, 2018
Coupon: It is determined in the auction (8.22% as shown in the illustration below)
Auction date: September 5, 2008
Auction settlement date: September 8, 2008*
Notified Amount: Rs.1000 crore
* September 6 and 7 being holidays, settlement is done on September 8, 2008 under T+1
cycle.

Details of bids received in the increasing order of bid yields
Bid No. Bid Yield
Amount of bid
(Rs. crore)
Cummulative amount
(Rs.Cr)
Price* with
coupon as 8.22%
1 8.19% 300 300 100.19
2 8.20% 200 500 100.14
3 8.20% 250 750 100.13
4 8.21% 150 900 100.09
5 8.22% 100 1000 100
6 8.22% 100 1100 100
7 8.23% 150 1250 99.93
8 8.24% 100 1350 99.87
The issuer would get the notified amount by accepting bids up to 5. Since the bid number
6 also is at the same yield, bid numbers 5 and 6 would get allotment pro-rata so that the
notified amount is not exceeded. In the above case each would get Rs. 50 crore. Bid
numbers 7 and 8 are rejected as the yields are higher than the cut-off yield.
*Price corresponding to the yield is determined as per the relationship given under YTM
calculation in question 24.
ii. Price Based Auction: A price based auction is conducted when Government of India re-issues securities
issued earlier. Bidders quote in terms of price per Rs.100 of face value of the security (e.g., Rs.102.00,
Rs.101.00, Rs.100.00, Rs.99.00, etc., per Rs.100/-). Bids are arranged in descending order and the
successful bidders are those who have bid at or above the cut-off price. Bids which are below the cut-off
price are rejected. An illustrative example of price based auction is given below:




Price based auction of an existing security 8.24% GS 2018
Maturity Date: April 22, 2018
Coupon: 8.24%
Auction date: September 5, 2008
Auction settlement date: September 8, 2008*
Notified Amount: Rs.1000 crore
* September 6 and 7 being holidays, settlement is done on September 8, 2008 under T+1 cycle.

Details of bids received in the decreasing order of bid price
Bid no. Price of bid
Amount of bid
(Rs. Cr)
Implicit
yield
Cumulative amount
1 100.31 300 8.1912% 300
2 100.26 200 8.1987% 500
3 100.25 250 8.2002% 750
4 100.21 150 8.2062% 900
5 100.20 100 8.2077% 1000
6 100.20 100 8.2077% 1100
7 100.16 150 8.2136% 1250
8 100.15 100 8.2151% 1350
The issuer would get the notified amount by accepting bids up to 5. Since the bid number
6 also is at the same price, bid numbers 5 and 6 would get allotment in proportion so that
the notified amount is not exceeded. In the above case each would get Rs. 50 crore. Bid
numbers 7 and 8 are rejected as the price quoted is less than the cut-off price.
4.2 Depending upon the method of allocation to successful bidders, auction could be classified as Uniform
Price based and Multiple Price based. In a Uniform Price auction, all the successful bidders are required to pay for
the allotted quantity of securities at the same rate, i.e., at the auction cut-off rate, irrespective of the rate quoted by
them. On the other hand, in a Multiple Price auction, the successful bidders are required to pay for the allotted
quantity of securities at the respective price / yield at which they have bid. In the example under (ii) above, if the
auction was Uniform Price based, all bidders would get allotment at the cut-off price, i.e., Rs.100.20. On the other
hand, if the auction was Multiple Price based, each bidder would get the allotment at the price he/ she has bid, i.e.,
bidder 1 at Rs.100.31, bidder 2 at Rs.100.26 and so on.
Secondary Market
There is an active secondary market in Government securities. The securities can be bought / sold in the secondary
market either (i) Over the Counter (OTC) or (ii) through the Negotiated Dealing System (NDS) or (iii) the Negotiated
Dealing System-Order Matching (NDS-OM).
i. Over the Counter (OTC)/ Telephone Market
In this market, a participant, who wants to buy or sell a government security, may contact a bank / Primary Dealer /
financial institution either directly or through a broker registered with SEBI and negotiate for a certain amount of a
particular security at a certain price. Such negotiations are usually done on telephone and a deal may be struck if
both counterparties agree on the amount and rate. In the case of a buyer, like an urban co-operative bank wishing to
buy a security, the bank's dealer (who is authorized by the bank to undertake transactions in Government Securities)
may get in touch with other market participants over telephone and obtain quotes. Should a deal be struck, the bank
should record the details of the trade in a deal slip (specimen given at Annex 3) and send a trade confirmation to the
counterparty. The dealer must exercise due diligence with regard to the price quoted by verifying with available
sources (See question number 14 for information on ascertaining the price of Government securities). All trades
undertaken in OTC market are reported on the secondary market module of the NDS.
ii. Negotiated Dealing System
The Negotiated Dealing System (NDS) for electronic dealing and reporting of transactions in government securities
was introduced in February 2002. It facilitates the members to submit electronically, bids or applications for primary
issuance of Government Securities when auctions are conducted. NDS also provides an interface to the Securities
Settlement System (SSS) of the Public Debt Office, RBI, Mumbai thereby facilitating settlement of transactions in
Government Securities (both outright and repos) conducted in the secondary market. Membership to the NDS is
restricted to members holding SGL and/or Current Account with the RBI, Mumbai.
In August, 2005, RBI introduced an anonymous screen based order matching module on NDS, called NDS-OM. This
is an order driven electronic system, where the participants can trade anonymously by placi ng their orders on the
system or accepting the orders already placed by other participants. NDS-OM is operated by the Clearing
Corporation of India Ltd. (CCIL) on behalf of the RBI .Direct access to the NDS-OM system is currently available only
to select financial institutions like Commercial Banks, Primary Dealers, Insurance Companies, Mutual Funds, etc.
Other participants can access this system through their custodians, i.e., with whom they maintain Gilt Accounts. The
custodians place the orders on behalf of their customers like the urban co-operative banks. The advantages of NDS-
OM are price transparency and better price discovery.
Gilt Account holders have been given indirect access to NDS through custodian institutions. A member (who has the
direct access) can report on the NDS the transaction of a Gilt Account holder in government securities. Similarly, Gilt
Account holders have also been given indirect access to NDS-OM through the custodians. However, currently two gilt
account holders of the same custodian are not permitted to undertake repo transactions between themselves.
iii. Stock Exchanges
Facilities are also available for trading in Government securities on stock exchanges (NSE, BSE) which cater to the
needs of retail investors.
Major players in the Government securities market include commercial banks and primary dealers besides
institutional investors like insurance companies. Primary Dealers play an important role as market makers in
Government securities market . Other participants include co-operative banks, regional rural banks, mutual funds,
provident and pension funds. Foreign Institutional Investors (FIIs) are allowed to participate in the Government
securities market within the quantitative limits prescribed from time to time. Corporates also buy/ sell the government
securities to manage their overall portfolio risk.
Types of Government Securities
a.Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by the
Government of India and are presently issued in three tenors, namely, 91 day, 182 day and 364 day. Treasury bills
are zero coupon securities and pay no interest. They are issued at a discount and redeemed at the face value at
maturity. For example, a 91 day Treasury bill of Rs.100/- (face value) may be issued at say Rs. 98.20, that is, at a
discount of say, Rs.1.80 and would be redeemed at the face value of Rs.100/-. The return to the investors is the
difference between the maturity value or the face value (that is Rs.100) and the issue. The Reserve Bank of India
conducts auctions usually every Wednesday to issue T-bills. Payments for the T-bills purchased are made on the
following Friday. The 91 day T-bills are auctioned on every Wednesday. The Treasury bills of 182 days and 364 days
tenure are auctioned on alternate Wednesdays. T-bills of of 364 days tenure are auctioned on the Wednesday
preceding the reporting Friday while 182 T-bills are auctioned on the Wednesday prior to a non-reporting Fridays.
The Reserve Bank releases an annual calendar of T-bill issuances for a financial year in the last week of March of the
previous financial year. The Reserve Bank of India announces the issue details of T-bills through a press release
every week.

b. Cash Management Bills (CMBs)
1.3 Government of India, in consultation with the Reserve Bank of India, has decided to issue a new short-term
instrument, known as Cash Management Bills (CMBs), to meet the temporary mismatches in the cash flow of the
Government. The CMBs have the generic character of T-bills but are issued for maturities less than 91 days. Like T-
bills, they are also issued at a discount and redeemed at face value at maturity. The tenure, notified amount and date
of issue of the CMBs depends upon the temporary cash requirement of the Government. The announcement of their
auction is made by Reserve Bank of India through a Press Release which will be issued one day prior to the date of
auction. The settlement of the auction is on T+1 basis. The non-competitive bidding scheme has not been extended
to the CMBs. However, these instruments are tradable and qualify for ready forward facility. Investment in CMBs is
also reckoned as an eligible investment in Government securities by banks for SLR purpose under Section 24 of
the Banking Regulation Act, 1949. First set of CMBs were issued on May 12, 2010.
c. Dated Government Securities
1.4 Dated Government securities are long term securities and carry a fixed or floating coupon (interest rate) which is
paid on the face value, payable at fixed time periods (usually half-yearly). The tenor of dated securities can be up to
30 years.
The Public Debt Office (PDO) of the Reserve Bank of India acts as the registry / depository of
Government securities and deals with the issue, interest payment and repayment of principal
at maturity. Most of the dated securities are fixed coupon securities.
The nomenclature of a typical dated fixed coupon Government security contains the following features - coupon,
name of the issuer, maturity and face value. For example, 7.49% GS 2017 would mean:

In case there are two securities with the same coupon and are maturing in the same year, then one of the securities
will have the month attached as suffix in the nomenclature. For example, 6.05% GS 2019 FEB, would mean that
Government security having coupon 6.05 % that mature in February 2019 along with the other security with the same
coupon, namely,, 6.05% 2019 which is maturing in June 2019.
If the coupon payment date falls on a Sunday or a holiday, the coupon payment is made on the next working day.
However, if the maturity date falls on a Sunday or a holiday, the redemption proceeds are paid on the previous
working day itself.
Just as in the case of Treasury Bills, dated securities of both, Government of India and State Governments, are
issued by Reserve Bank through auctions. The Reserve Bank announces the auctions a week in advance through
press releases. Government Security auctions are also announced through advertisements in major dailies. The
investors, are thus, given adequate time to plan for the purchase of government securities through such auctions.
A specimen of a dated security in physical form is given at Annex 1.
Instruments:
i. Fixed Rate Bonds These are bonds on which the coupon rate is fixed for the entire life of the bond. Most
Government bonds are issued as fixed rate bonds.

For example 8.24%GS2018 was issued on April 22, 2008 for a tenor of 10 years maturing on April 22,
2018. Coupon on this security will be paid half-yearly at 4.12% (half yearly payment being the half of the
annual coupon of 8.24%) of the face value on October 22 and April 22 of each year.

ii. Floating Rate Bonds Floating Rate Bonds are securities which do not have a fixed coupon rate. The
coupon is re-set at pre-announced intervals (say, every six months or one year) by adding a spread over a
base rate. In the case of most floating rate bonds issued by the Government of India so far,the base rate is
the weighted average cut-off yield of the last three 364- day Treasury Bill auctions preceding the coupon re-
set date and the spread is decided through the auction. Floating Rate Bonds were first issued in September
1995 in India.

For example, a Floating Rate Bond was issued on July 2, 2002 for a tenor of 15 years, thus maturing on July
2, 2017. The base rate on the bond for the coupon payments was fixed at 6.50% being the weighted
average rate of implicit yield on 364-day Treasury Bills during the preceding six auctions. In the bond
auction, a cut-off spread (markup over the benchmark rate) of 34 basis points (0.34%) was decided. Hence
the coupon for the first six months was fixed at 6.84%.

iii. Zero Coupon Bonds Zero coupon bonds are bonds with no coupon payments. Like Treasury Bills, they are
issued at a discount to the face value. The Government of India issued such securities in the nineties, It has
not issued zero coupon bond after that.
iv. Capital Indexed Bonds These are bonds, the principal of which is linked to an accepted index of inflation
with a view to protecting the holder from inflation. A capital indexed bond, with the principal hedged against
inflation, was issued in December 1997. These bonds matured in 2002. The government is currently working
on a fresh issuance of Inflation Indexed Bonds wherein payment of both, the coupon and the principal on the
bonds, will be linked to an Inflation Index (Wholesale Price Index). In the proposed structure, the principal
will be indexed and the coupon will be calculated on the indexed principal. In order to provide the holders
protection against actual inflation, the final WPI will be used for indexation.
v. Bonds with Call/ Put Options Bonds can also be issued with features of optionality wherein the issuer can
have the option to buy-back (call option) or the investor can have the option to sell the bond (put option) to
the issuer during the currency of the bond. 6.72%GS2012 was issued on July 18, 2002 for a maturity of 10
years maturing on July 18, 2012. The optionality on the bond could be exercised after completion of five
years tenure from the date of issuance on any coupon date falling thereafter. The Government has the right
to buyback the bond (call option) at par value (equal to the face value) while the investor has the right to sell
the bond (put option) to the Government at par value at the time of any of the half-yearly coupon dates
starting from July 18, 2007.
vi. Special Securities - In addition to Treasury Bills and dated securities issued by the Government of India
under the market borrowing programme, the Government of India also issues, from time to time, special
securities to entities like Oil Marketing Companies, Fertilizer Companies, the Food Corporation of India, etc.
as compensation to these companies in lieu of cash subsidies. These securities are usually long dated
securities carrying coupon with a spread of about 20-25 basis points over the yield of the dated securities of
comparable maturity. These securities are, however, not eligible SLR securities but are eligible as collateral
for market repo transactions. The beneficiary oil marketing companies may divest these securities in the
secondary market to banks, insurance companies / Primary Dealers, etc., for raising cash.
vii. Steps are being taken to introduce new types of instruments like STRIPS (Separate Trading of Registered
Interest and Principal of Securities). Accordingly, guidelines for stripping and reconstitution of Government
securities have been issued. STRIPS are instruments wherein each cash flow of the fixed coupon security is
converted into a separate tradable Zero Coupon Bond and traded. For example, when Rs.100 of the
8.24%GS2018 is stripped, each cash flow of coupon (Rs.4.12 each half year) will become coupon STRIP
and the principal payment (Rs.100 at maturity) will become a principal STRIP. These cash flows are traded
separately as independent securities in the secondary market. STRIPS in Government securities will ensure
availability of sovereign zero coupon bonds, which will facilitate the development of a market determined
zero coupon yield curve (ZCYC). STRIPS will also provide institutional investors with an additional
instrument for their asset- liability management. Further, as STRIPS have zero reinvestment risk, being zero
coupon bonds, they can be attractive to retail/non-institutional investors. The process of
stripping/reconstitution of Government securities is carried out at RBI, Public Debt Office (PDO) in the PDO-
NDS (Negotiated Dealing System) at the option of the holder at any time from the date of issuance of a
Government security till its maturity. All dated Government securities, other than floating rate bonds, having
coupon payment dates on 2nd January and 2nd July, irrespective of the year of maturity are eligible for
Stripping/Reconstitution. Eligible Government securities held in the Subsidiary General Leger
(SGL)/Constituent Subsidiary General Ledger (CSGL) accounts maintained at the PDO, RBI, Mumbai.
Physical securities shall not be eligible for stripping/reconstitution. Minimum amount of securities that needs
to be submitted for stripping/reconstitution will be Rs. 1 crore (Face Value) and multiples thereof.
d. State Development Loans (SDLs)
1.7 State Governments also raise loans from the market. SDLs are dated securities issued through an auction similar
to the auctions conducted for dated securities issued by the Central Government (see question 3 below). Interest is
serviced at half-yearly intervals and the principal is repaid on the maturity date. Like dated securities issued by the
Central Government, SDLs issued by the State Governments qualify for SLR. They are also eligible as collaterals for
borrowing through market repo as well as borrowing by eligible entities from the RBI under the Liquidity Adjustment
Facility (LAF).















Equity Desk
This desk comes under Non SLR investment and primary dealers on this desk have tedious job of
investing and trading in equity markets. According to RBI the banks should formulate
transparent policy and procedure for investment in shares etc., with the approval of their Board.
The banks should build up adequate expertise in equity research by establishing a dedicated
equity research department, wherever warranted by their scale of operations.
Equity Research Team
This team is responsible for making equity reasearch reports base on fundamental and technical
analysis.
Technical Analysis
Technical Analysis can be defi ned as an art and science of forecasting future prices based on
an examination of the past price movements. Technical analysis is not astrology for predicting
prices. Technical analysis is based on analyzing current demand-supply of commodities,
stocks, indices, futures or any tradable instrument.
Technical analysis involve putting stock information like prices, volumes and open interest
on a chart and applying various spatterns and indicators to it in order to assess the future
price movements. The time frame in which technical analysis is applied may range from
intraday (1-minute, 5-minutes, 10-minutes, 15-minutes, 30-minutes or hourly), daily, weekly
or monthly price data to many years.

Fundamental Analysis

A method of evaluating a security that entails attempting to measure its intrinsic value by
examining related economic, financial and other qualitative and quantitative factors. Fundamental
analysts attempt to study everything that can affect the security's value, including macroeconomic
factors (like the overall economy and industry conditions) and company-specific factors (like
financial condition and management).

The end goal of performing fundamental analysis is to produce a value that an investor can
compare with the security's current price, with the aim of figuring out what sort of position to
take with that security (underpriced = buy, overpriced = sell or short).

This method of security analysis is considered to be the opposite of technical analysis.
Few Reports are attached that I have made during my internship.


Derivatives Desk