RBI Introduces STRIPS Facility for State Government Securities
The Reserve Bank of India (RBI) has announced the introduction of the Separate Trading of Registered Interest and Principal of Securities (STRIPS) facility for State Government Securities (SGS), marking a significant step in deepening the bond market in India. This move comes after a proposal outlined in the Statement on Developmental and Regulatory Policies released on August 7, 2019, and follows extensive consultations with individual State Governments, Union Territories, and market participants.
STRIPS allow investors to hold and trade the individual cash flows of a fixed-income security as separate securities. These include the principal and each interest payment that the bond generates. Until now, the STRIPS facility was available only for eligible Central Government dated securities since its introduction in April 2010. With this new development, the facility is now extended to eligible State Development Loans (SDLs), which are now referred to as State Government Securities.
Eligibility Criteria
For a security to be eligible for stripping or reconstitution, it must be a fixed coupon SGS with a residual maturity of up to 14 years and a minimum outstanding amount of ₹1,000 crore on the day of stripping. Moreover, such securities must be transferable and recognized as eligible investments for meeting the Statutory Liquidity Ratio (SLR) requirements, ensuring their relevance for regulatory purposes and maintaining liquidity in the secondary market.
Operational Mechanism
Market participants holding Subsidiary General Ledger (SGL) accounts with the RBI can directly place requests for stripping or reconstitution via the RBI’s Core Banking Solution – the e-Kuber platform. Gilt Account Holders, on the other hand, must route their requests through their custodians who maintain Constituents’ SGL (CSGL) accounts with the RBI. These custodians will then process the requests on behalf of their clients.
Nomenclature and Applicability
The nomenclature and International Securities Identification Number (ISIN) for STRIPS in SGS will align with those used for STRIPS in Central Government securities. All existing terms and conditions applicable to the stripping and reconstitution of government securities, as per RBI notifications dated October 16, 2009, April 10, 2018, and March 25, 2010 (as amended), will apply mutatis mutandis to this facility.
Effective Date
The facility for stripping and reconstitution in State Government Securities becomes effective immediately from the date of the RBI’s circular issued on May 29, 2025. This measure is expected to enhance liquidity, improve price discovery, and provide greater flexibility to investors in managing interest rate risk.
