The Reserve Bank of India (RBI) on Friday, November 14 has released the proposed draft guidelines for accounting of repo and reverse repo transactions to enhance the transparency.

The proposed draft guidelines seek to revise the guidelines issued in March 2003 which treated ``repo`` as a combination of two independent sale/purchase transactions as per the legal provisions prevailing then.

The amendment in the accounting norms would bring such transactions on to the balance sheet of the repo participants in its true economic sense, thus enhancing transparency.

The securities sold under repo would continue to be reflected in the investment account of the repo seller. Accordingly, the repo buyer would not reflect the securities acquired under repo in his investment account. The actual movement of securities between repo buyer and repo seller would, however, be reflected through contra entries in the balance sheet.

The securities acquired under repo would continue to be reckoned as liquid assets for the purpose of Section 24 of Banking Regulation Act, 1949 in the books of the repo buyer. Accordingly, the securities sold under repo would not be accorded the benefit of Statutory Liquidity Ratio (SLR) for the repo seller, even though the seller`s investment account would continue to show the securities sold under repo.

The liabilities on account of repo borrowing would be included in the net demand and time liabilities (NDTL) calculation for maintenance of cash reserve ratio (CRR). However, inter-bank repo transactions would continue to be netted, as up till now.