Sale of Government of India Securities - F. No. 4(2)-W&M/2018 - Indian Law

MINISTRY OF FINANCE (Department of Economic Affairs) (BUDGET DIVISION) GENERAL NOTIFICATION New Delhi, the 27th March, 2018 Subject : Sale of Government of India Securities F.No.4(2)-W M/2018. Government of India, in supersession of Notification F.No.4(9)- W M/2000 dated 6thMay, 2002, and Notification F.No.4(13)-W M/2008 dated 8th October, 2008 issued by Government of India, hereby notifies general guidelines for issuance of Government Securities (hereinafter referred to as Securities). Issuance of Securities, will be subject to terms and conditions spelt out in this Notification (called the 'General Notification' ) as also terms and conditions notified separately in the Specific Notifications to be issued from time to time in respect of each security issue. The General Notification lists out basic terms and conditions applicable to issues of Government Securities ( G-Secs ) and the features and methods of issue of different types of Government Securities. Specific Notification issued from time to time in respect of each security issue, will supplement the General Notification and cover additional specific features pertaining to the particular security issue. 2. General Terms and conditions applicable to Government Securities The general terms and conditions applicable to all issues of Government Securities will be as under: 2.1 Eligibility for Investment Investment in the Government Securities may be made by any person resident in India, including firms, companies, corporate bodies, institutions, State Governments, Provident Funds and Trusts, Non-Resident Indians, Overseas Citizens of India Foreign Portfolio Investors ( FPIs ) registered with the Securities and Exchange Board of India ( SEBI )and approved by Reserve Bank of India ( RBI ) and other person not resident in India, as specified by the RBI with the prior approval of the Government of India, in this regard. Foreign Central Banks ( FCBs ) will also be eligible to invest in the Government securities subject to the terms and conditions stipulated by the RBI, in consultation with the Government of India, in the Scheme for Rupee Investments by FCBs. Investment by a person resident outside India or a Company which is incorporated outside India or any branch of such Company shall be subject to the provisions of the Foreign Exchange Management Act, 1999 ( FEMA ) and Regulations framed there under, in addition to the other provisions of law applicable to Government Securities. 2.2 Minimum Subscription Government Securities will be issued for a minimum amount of Rs. 10,000 (Face Value) and in multiples of Rs. 10,000 thereafter. 2.3 Procedure for Application (i) Both competitive and non-competitive bids for the auction should be submitted in electronic format on the Reserve Bank of India s Core Banking Solution (E-Kuber) system on the day of the auction, up to the close of auction time prescribed by the RBI. Bids in physical form will not be accepted except in extraordinary circumstances such as network failure, etc. FPIs and NRIs, however, should submit their applications through the designated Authorised Dealer bank branches. (ii) Applications for Government Securities other than through the auction mode, such as for Sovereign Gold Bonds, 7.75% savings taxable bonds, etc. duly filled in and complete in all respects should be submitted to the office of RBI or any other office notified for the purpose, before the close of specified time/banking hours notified by the RBI on the specified date(s). (iii) Interested persons submitting applications for purchase of Government Securities shall also be bound by other terms and conditions as indicated in the Specific Notification. 2.4 Payment for Government Securities Payment for the Government Securities shall be made by the successful applicants/investors on such dates as mentioned in the Specific Notification, by means of cheque drawn on RBI, Mumbai or any specified office of RBI or Banker's pay order or by authority to debit their current account with RBI or by Electronic Fund Transferor by any other means as specified by RBI. 2.5 Form of Security The Government Securities shall be issued to the investors by credit to their Subsidiary General Ledger Account or to a Constituents Subsidiary General Ledger Account [CSGL are the SGL accounts with RBI where the G-Secs of bank s customers are held separately from the banks own holding of G-Secs], maintained with RBI or by credit to their Bond Ledger Account maintained with RBI or with any institution authorised by the RBI in this behalf as per the Government Securities Act, 2006, or in the form of Stock Certificate or in such other form as may be prescribed under the provisions of the Government Securities Act, 2006. The other Form of G-Secs will be notified separately, if and where necessary. 2.6 Payment of Interest (i) Interest on Government Securities will be paid at the Public Debt Offices of the RBI or any other office of Reserve Bank of India notified for this purpose from time to time, or at branches of the State Bank of India or at any Treasury or Sub-Treasury served by Public Debt Office where there is no office of Reserve Bank of India or branch of the State Bank of India, except Sikkim, where tie-up is with State Bank of Sikkim. Interest on securities held in Bond Ledger Account with any of the offices of RBI/ Agency, as specified by Reserve Bank of India in this behalf, will be paid at such Office/Agency. (ii) Interest will be paid after rounding off the amount to the nearest whole rupee. For this purpose, amount of interest less than fifty paise will be ignored and fifty paise or more will be rounded off to the next rupee. 2.7 Repayment of Government Securities (i) The Government Securities will be repaid at Public Debt Offices of the Reserve Bank of India or any other institution at which they are registered at the time of repayment. (ii) The Government Security may be repaid at the option of Government of India, before the specified redemption date, where a call option is specified in the Specific Notification relating to the issue of a Government Security. The redemption in such cases will be made in line with the conditions contained in the Specific Notification. (iii) The Government Security may be repaid, at the option of the holder of the Security, before the specified redemption date, where a put option is specified in the Specific Notification relating to the issue of a Government Security. The redemption in such cases will be made in line with the conditions contained in the Specific Notification. (iv) The Government Security will be repaid on the date of redemption specified in the Specific Notification, when neither a Call Option nor a Put Option is specified/exercised. 2.8 Transferability of Government Securities (i) Government Securities can be renewed, sub-divided, consolidated, converted and transferred in accordance with the provisions of the Government Securities Act, 2006 and the Government Securities Regulations, 2007 framed there under, and the terms of this notification and any further notification which may be issued by the Government of India from time to time in this regard. (ii) The conversion of any Security issued from one form to the other will be subject to the restrictions with respect to the forms in which the Government Securities shall be issued. (iii) The transfers of Government Securities by NRIs, FPIs and FCBs will be subject to Regulations framed under FEMA and guidelines issued by the RBI. Transfer of securities by FPIs, in addition, will also be subject to applicable SEBI s FPI Regulations 2014, as modified from time to time . 2.9 Laws applicable in regard to the Government Securities (i) The rights of all persons subscribing to or holding the Government Securities shall be determined in accordance with the Government Securities Act, 2006 and the Government Securities Regulations, 2007, framed there under, read with the terms of this Notification and such other Notification as may be issued from time to time or by the terms of Press Releases, as may be issued in future by Reserve Bank of India, in consultation with Government of India, in this regard. (ii) The provisions of the tax laws for the time being in force in India will be applicable for the purposes of assessing and determining the liability of the investor or holder of the Government Securities. (iii) Any dispute in relation to the Government Securities shall be subject to the jurisdiction of the Courts in India. 3. Participation by Reserve Bank of India The Reserve Bank of India may also, under exceptional circumstances brought out in the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, as amended from time to time, and the Rules framed there under, participate in the auction as a non-competitor or subscribe to the Government Securities in other issues. Allotment of Securities to Reserve Bank of India will be at the cut off price/yield emerging in the auction or at a negotiated price/yield decided by the Government of India. 4. Modes of issue of Government Securities The Government of India may issue Government Securities, from time to time, through following modes: i. Auction, either yield based or price based. ii. At pre-announced fixed coupon rates with bidding limited to participants, as notified by GoI. iii. On-tap sale. iv. By conversion of treasury bills/dated securities. v. Any other mode, as may be notified. 5. Features of different modes of issue of Government Securities 5.1 Issue of Securities through auction (i) The Securities will be issued through auction, either on price basis or on yield basis. Where the issue is on price basis, the coupon will be pre-determined, e.g. in re-issued G-Secs, and the bidders have to quote the price per Rs. 100/- face value of the security, at which they desire to purchase the security. Where the issue is on yield basis, the coupon of the security is decided in an auction conducted by RBI in the manner as provided hereinafter and further provided in the Specific Notifications issued from time to time. The security carries the same coupon till maturity, except for Floating Rate Bonds ( FRBs ). (ii) The yield per cent per annum or the price, as the case may be, expressed up to four decimal places, should be clearly stated in the application. (iii) An applicant may submit multiple bids at same/different rates of yield or prices, as the case may be, through separate applications for each bid. The aggregate amount of bids submitted by a person for an individual security should not exceed the aggregate amount of Government Securities offered for sale, plus additional amount that can be retained under the green shoe option, if any, that the Government may like to exercise. Further, the aggregate amount of all bids submitted by a person in the auction should not exceed the total notified amount offered for sale in that particular auction. (iv) On the basis of the bids received, the Reserve Bank of India, in consultation with Government of India, will determine the maximum rate of yield or the minimum price offered, as the case may be, at which offers for purchase of Government Securities will be accepted at the auction. Except in the case of price-based auctions, the maximum rate of yield determined at the auction will be the per annum coupon rate on the Securities sold at the auction. (v) The auctions for issue of securities (yield basis or price basis) can be held as per Uniform price method or on Multiple price method or any other method as decided by the Reserve Bank of India, in consultation with the Government of India. (a) Where an auction is held as per Uniform price method, competitive bids offered with rates up to and including the maximum rate of yield or the prices up to and including the minimum offer price, as determined by the Reserve Bank of India, will be accepted at the maximum rate of yield or minimum offer price so determined. Bids quoted higher than the maximum rate of yield or lower than the minimum price, as determined by the Reserve Bank of India, in consultation with the Government of India, will be rejected. (b) Where an auction is held on Multiple price method, competitive bids offered up to the maximum rate of yield or the minimum offer price, as determined by the Reserve Bank of India, in consultation with the Government of India, will be accepted at the respective bid rate, subject to a ceiling of notified amount, including the green shoe option. In yield-based auctions, successful bidders, whose quotes are lower than the maximum rate of yield accepted, are required to pay the price differential in the form of a premium. All other bids, viz bids quoted higher than the cut-off rate of yield or lower than the cut-off price, as determined by the Reserve Bank of India, in consultation with the Government of India, will be rejected. (c) Where the auction is held on any other method, the method of acceptance of the bids will be decided by the Government of India. (vi) Individuals and institutions,(called Retail investors ), as may be specified by the Reserve Bank of India, in consultation with the Government of India, can participate in the auctions on non-competitive basis, indirectly through an aggregator/ Facilitator as per the scheme of Non-competitive bidding facility announced by the RBI, in consultation with the Government of India. Eligibility criteria for participation on noncompetitive basis and the manner in which such bids should be submitted will be announced by Reserve Bank of India, in consultation with the Government of India. Allocation of the Securities to non-competitive bidders will be at the discretion of the RBI, in consultation with the Government of India, and will be at a price not higher than the weighted average price arrived at on the basis of the competitive bids accepted at the auction (including the amount of green shoe option) or any other price announced in the Specific Notification. The nominal amount of Securities that will be allocated to Retail investors on non-competitive basis will be restricted to a maximum percentage of the aggregate nominal amount of the issue, within or outside the nominal amount, as specified in the Specific Notification by the Government of India. (vii) The Reserve Bank of India, in consultation with Government of India, will have the discretion to accept excess subscriptions to the extent as may be specified in the Specific Notification pertaining to the issue of the Security and make allotment of the security accordingly. (viii) The Reserve Bank of India will have full discretion, in consultation with the Government of India, to accept or reject any or all bids either wholly or partially, without assigning any reason. 5.2 Issue of Securities at pre-announced coupon rates (i) The coupon on such Securities will be announced before the date of floatation and the Securities may be issued at par/premium/discount as per the Specific Notification. (ii) In case the total subscription exceeds the aggregate amount offered for sale in respect of affixed coupon Security, the Reserve Bank of India, in consultation with the Government of India, may make partial allotment to some or all the applicants. (iii)The Reserve Bank of India, in consultation with the Government of India, will have the discretion to go for Green Shoe Option i.e. accept excess subscriptions to the extent as may be specified in the Specific Notification pertaining to the issue of the Security and make allotment of the security accordingly. (iv) The Reserve Bank of India, in consultation with the Government of India, will have the discretion to accept or reject any or all applications, either wholly or partially, without assigning any reason. 5.3 Issue of Securities through tap sale No aggregate amount is indicated in the notification in respect of the Securities sold on tap. Sale of such Securities may be extended to whole or part of the year and the sale may be closed at any time on any day. 5.4 Switching/ Issue of new Government Securities in conversion of maturing Treasury Bills/dated securities The holders of Treasury Bills of certain specified maturities and holders of specified dated securities are provided an option to convert the respective Treasury Bills/dated security at specified prices into new Securities offered for sale. The new Securities could be issued on an auction/pre-announced coupon/ price basis. 6.Types of Government Securities. The Government of India may issue from time to time the following types of Securities: i. Securities with fixed coupon rates. ii. Securities with variable coupon rates, e.g. Floating Rate Bonds ( FRBs ), Inflation Linked Bonds, Capital Indexed Bonds, etc. iii. Zero Coupon Bonds ( ZCBs ). iv. Securities for which the subscription maybe paid in specified instalments. v. Securities for which repayment by GoI is made in specified instalments (amortisation through fixed number and amount of instalments). vi. Securities with Embedded Options (e.g. Call and Put Options). vii. Securities with other features as notified in the Specific Notification. 7. Features of Types of Government Securities 7.1 Securities with fixed coupon rates (i) Such securities carry a specific coupon rate remaining fixed during the term of the security and payable periodically. (ii) Issue of security may be at a discount, at par or at a premium to the face value. (iii) Redemption of the Security will be at par. 7.2 Securities with variable coupon rates, viz., Floating Rate Bonds, etc. (i) The Security carry a coupon rate which will vary according to the change in the reference rate to which it is linked. The description of the reference rate and the manner in which the coupon rate is linked to the former will be announced in the Specific Notification. (ii) Coupon rate may be subject to a floor or cap, if any, as the case may be, as prescribed in the Specific Notification. (iii) Method of issue in respect of securities/bonds with variable coupon rate will be as announced in the Specific Notification. 7.3 Zero Coupon Bonds (ZCBs) (i) ZCBs are issued at a discount and redeemed at par. No interest is paid on such bonds. (ii) In respect of ZCBs issued through auction, the price at which the ZCBs are proposed to be purchased per Rs. 100 of nominal value, expressed up to four decimal places should be specifically stated in the application. Applications which do not contain details, such as the nominal value of the Bonds, the price per Rs. 100 at which Bonds are proposed to be purchased or which contain any other incomplete details are liable to be rejected, without any reference to the applicant. (iii) On the basis of the bids received through tenders, the cut-off price at which tenders for purchase of Zero Coupon Bonds will be accepted at the auction would be determined by RBI, in consultation with the Government of India, to accept or reject any or all bids either wholly or partially, without assigning any reason. All such bids, which are found to be up to the cut-off price, will be accepted and all other bids, which are found to be lower than the accepted cut-off price, will be rejected. 7.4 Securities issued through the method where either the subscription and/or repayment is received/paid in instalments The Securities under this method are issued either by auction or at pre-announced coupon rate. The special feature of the Securities is that either the payment for the securities is received in specified instalments or the repayment of the securities is made in specified instalments, as notified in the Specific notification relating to the issue of the security. 7.5 Securities with Embedded Derivatives Government Securities may be issued with embedded derivative features, for example, Call and Put Options. The Government security may be repaid at the option of Government of India, before the specified redemption date, where a call option is specified in the Specific Notification relating to the issue of a Government Security and the Government Security may be repaid, at the option of the holder of the Security, before the specified redemption date, where a put option is specified in the Specific Notification relating to the issue of a Government Security. 8. Other Terms and conditions to be announced in the Specific Notification: The other terms and conditions specific to each issue of Government Securities will be notified separately in the Specific Notifications from time to time. By Order of the President of India, PRASHANT GOYAL, Jt. Secy.