Talking about the Indian repo market, which is confined only to the government bond market, she said, "There is a need for a standardised documentation specifying the terms of repo transactions to facilitate development of the repo market and provide a much-needed depth to the market."

Comparing the advance repo transaction system followed by nations like the US and the UK with the Indian repo system, Thorat said that in India ready-forward trading is prohibited by a notification issued in 1969 and unlike other countries, collateral lending or borrowing is not allowed here. "For the development of the repo market, we should frame regulatory guidelines, a proper and transparent delivery verses payment (DVP)system and upgrade technology," she said.

When asked about the viability of a tri-party repo transaction where three parties are involved in a repo transaction and the third party acts as a clearing house, she said, "Tri-party agreement is inescapable as the risk of default is comparatively lower. When the repo market develops, banks will find such transactions attractive as they are looking at various products, including repo which will give assured returns by pledging a collateral."

At present, banks, primary dealers and satellite dealers are allowed to participate in repo and reverse repo only with notified securities. Talking about the underdeveloped repo market, Arvind Sethi, head, global capital market group at Bank of America, said, "The Indian repo market is limited to the government bond market where the daily trades are not more than Rs 200-300 crore."