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Scheme for Non-Competitive Bidding Facility in the Auctions of Government of India dated securities

BPD. PCB.Cir. 2 /09.80.00/2003-04

July 8, 2003

The Chief Executive Officers
All Primary (Urban) Co-operative Banks

Dear Sir / Madam ,

Scheme for Non-Competitive Bidding Facility in the
Auctions of Government of India dated securities

Please refer to our circular UBD.No.Plan.PCB.CIR.41/ 09.29.00/2001-2002 dated April 20,2002. In terms of para 2 (iii) of this circular, urban co-operative banks were advised to take advantage of non-competitive bidding facility provided to them for acquiring Government of India securities in the primary auctions by the Reserve Bank of India.

2. The Scheme of Non-Competitive Bidding facility in the auctions of Government of India dated securities has been made an integral part of the auctions. Under this scheme, each urban co-operative bank can bid upto Rs. two crore (face value) in any auction of Government of India dated securities on a non-competitive basis through a bank or a Primary Dealer.The banks can even bid directly under this facility. For availing of this facility, no bidding skill is required, as allotment up to Rs. two crore (face value) is given at the weighted average cut-off rate which emerges in the auctions. The details of the captioned scheme are given in the Annexure.

3. In addition, UCBs can also participate directly or through a bank or Primary Dealer in the auctions of State Development loans where the coupon is mostly fixed in advance and notified by RBI. The auction is generally announced 4-5 days in advance of the date of auction and an advertisement to this effect is issued in the leading newspapers. Further, half yearly auction calendar of Government of India securities is also issued by RBI.

4. Please acknowledge receipt to our concerned Regional Office.

Yours faithfully,

( Sudarshan Sen)
General Manager



Scheme for Non-competitive Bidding Facility in
the Auctions of Government Securities

I. Scope : With a view to encouraging wider participation and retail holding of Government securities it is proposed to allow participation on 'non-competitive' basis in select auctions of dated Government of India securities. Accordingly, non-competitive bids up to 5 percent of the notified amount will be accepted in the auctions of dated securities. The reserved amount will be within the notified amount.

II. Eligibility: Participation on a non-competitive basis in the auctions of dated GOI securities will be open to investors who satisfy the following:

  1. do not maintain current account (CA) or Subsidiary General Ledger (SGL) account with the Reserve Bank of India.
  2. Exceptions: Regional Rural Banks (RRBs) and Cooperative Banks shall be covered under this Scheme in view of their statutory obligations.

  3. make a single bid for an amount not more than Rs. two crore (face value) per auction
  4. submit their bid indirectly through any one bank or PD offering this scheme.

Exceptions: Regional Rural Banks (RRBs) and Cooperative Banks that maintain SGL account and current account with the Reserve Bank of India shall be eligible to submit their non competitive bids directly.

III. Coverage: Subject to the conditions mentioned above, participation on 'non-competitive' basis is open to any person including firms, companies, corporate bodies, institutions, provident funds, trusts, and any other entity as may be prescribed by RBI. The minimum amount for bidding will be Rs.10,000 (face value) and thereafter in multiples in Rs.10,000 as hitherto for dated stocks.

IV. Other Operational Guidelines:

1. It will not be mandatory for the retail investor to maintain a constituent subsidiary general ledger (CSGL) account with the bank or PD through whom they wish to participate. However, an investor can make only a single bid under this scheme. An undertaking to the effect that the investor is making only a single bid will have to be obtained and kept on record by the bank or PD.

2. Each bank or PD on the basis of firm orders submit a single customer bid for the aggregate amount on the day of the auction. Details of individual customers viz. name, amount, etc shall be provided as an Annexure to the bid.

3. Allotment under the non-competitive segment to the bank or PD will be at the weighted average rate of yield/price that will emerge in the auction on the basis of the competitive bidding. The securities will be issued to the bank or PD against payment on the date of issue irrespective of whether the bank or PD has received payment from their clients.

4. In case the aggregate amount of bid is more than the reserved amount (5% of notified amount), pro rata allotment would be made. In case of partial allotments, it will be the responsibility of the bank or PD to appropriately allocate securities to their clients in a transparent manner.

5. In case the aggregate amount of bids is less than the reserved amount, the shortfall will be taken to competitive portion.

6. Security would be issued only in SGL form by RBI. RBI would credit either the main SGL account or the CSGL account of the bank or PD as indicated by them. The facility for affording credit to the main SGL account is for the sole purpose of servicing investors who are not their constituents. Therefore, the bank or PD would have to indicate clearly at the time of tendering the non-competitive bids the amounts (face value) to be credited to their SGL account and the CSGL account. Delivery in physical form from the main SGL account is permissible at the instance of the investor subsequently.

7. It will be the responsibility of the bank or the PD to pass on the securities to their clients. Except in extraordinary circumstances, the transfer of securities to the clients shall be completed within five working days from the date of issue.

8. The bank or PD can recover upto six paise per Rs.100 as brokerage /commission/service charges for rendering this service to their clients. Such costs may be built into the sale price or recovered separately from the clients. In case the transfer of securities is effected subsequent to the issue date of the security, the consideration amount payable by the client to the bank or PD would also include accrued interest from the date of issue.

9. Modalities for obtaining payment from clients towards cost of the securities, accrued interest wherever applicable and brokerage/ commission/ service charges may be worked out by the bank or PD as per agreement with the client. It may be noted that no other costs such as funding costs should be built into the price or recovered from the client.

V. Banks and PDs will be required to furnish information relating to operations under the Scheme to the Reserve Bank of India (Bank) as may be called for from time to time within the time frame prescribed by the Bank.

VI. The aforesaid guidelines are subject to review by the Bank and accordingly, if and when considered necessary, the Scheme will be modified.