RBI Amends STRIPS Guidelines: Expands Eligibility for Stripping of Government Securities [Read Notification]

The Reserve Bank of India (RBI) has amended its guidelines on STRIPS (Separate Trading of Registered Interest and Principal of Securities), significantly widening the scope of securities eligible for stripping and reconstitution. The changes were formalized through a notification dated May 29, 2025, and published in the Official Gazette on May 30, 2025.

What are STRIPS?

STRIPS allow the separation of the interest and principal components of government securities, enabling them to be traded independently as zero-coupon instruments. This increases liquidity and provides additional instruments for fixed-income investors, particularly in building customized cash flow portfolios.

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Key Amendments

1. System Update

The operational system reference in the guidelines has been updated from “PDO-NDS (Negotiated Dealing System)” to “RBI Core Banking Solution (e-Kuber System)”, reflecting the migration to a more modern and centralized platform for processing such transactions.

2. Expansion of Eligibility Criteria

a) Central Government Securities: All fixed coupon securities issued by the Government of India are now eligible for stripping/reconstitution, regardless of their maturity date.

This removes the earlier restrictions based on maturity profile, expanding the market for STRIPS.

b) State Government/Union Territory Securities: Fixed coupon securities issued by State Governments/UTs are now eligible for stripping if:

• They have a residual maturity of up to 14 years, and
• Have a minimum outstanding amount of Rs. 1,000 crore on the day of stripping.

This marks the first time state and UT securities are formally brought into the STRIPS framework, albeit with conditions on maturity and size.

3. SLR and Transferability Confirmation

All securities that qualify under the above categories will continue to be eligible for Statutory Liquidity Ratio (SLR) investments and will remain freely transferable

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Implications for the Market

• Increased Liquidity: Broader eligibility will encourage participation from a wider range of investors including pension funds, insurance companies, and banks.
• Yield Curve Development: A more diversified STRIPS market supports the development of a long-term zero-coupon yield curve, enhancing pricing efficiency.
• State Borrowing Instruments: State governments now gain better access to secondary market liquidity, potentially improving the attractiveness of SDLs (State Development Loans).

These amendments modify the original STRIPS guidelines issued in October 2009 (Notification No. IDMD.1762/2009-10) and later updated in April 2018. The latest changes aim to modernize the operational framework and align eligibility criteria with current market dynamics.

To Read the full text of the Order CLICK HERE

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