RBI Introduces STRIPS for State Government Securities

Current Context: The Reserve Bank of India (RBI) has introduced Separate Trading of Registered Interest and Principal of Securities (STRIPS) for State Government Securities (SGS), effective June 12, 2025.

• This expands the existing STRIPS facility, which has been available for Central Government securities since 2010.

Key Highlights

• Eligible Securities: Fixed coupon SGS with a residual maturity of up to 14 years and a minimum outstanding of ₹1,000 crore.
• Trading Mechanism: Market participants with SGL accounts can place requests directly via RBI’s e-Kuber system, while Gilt Account Holders must process requests through custodians.
• Liquidity & Investment Benefits: STRIPS allow independent trading of principal and interest components, enhancing market liquidity and investment flexibility.
• Regulatory Framework: The ISIN and nomenclature for SGS STRIPS will align with Central Government securities, ensuring standardization.

Question:

Q.1 Which of the following conditions must a State Government Security meet to be eligible for Separate Trading of Registered Interest and Principal of Securities (STRIPS)?
a) Variable interest rate and outstanding of ₹500 crore
b) Fixed coupon and residual maturity up to 14 years with minimum ₹1,000 crore outstanding
c) Zero-coupon bond with 5-year residual maturity
d) Floating rate and residual maturity less than 10 years

Answer: b) Only fixed coupon SGS with residual maturity up to 14 years and a minimum outstanding of ₹1,000 crore are eligible for stripping.