A 'gridlock' is a situation wherein there is shortfall of funds on a gross basis in the current accounts of one or more subsidiary general ledger (SGL) account holders.

An RBI statement on Tuesday said: "Although the delivery-versus-payment (DVP) system introduced in July 1995 has generally been working satisfactorily, there have been instances of a gridlock in the system. To take care of such unusual and exceptional circumstances, the special fund facility for security settlement has been envisaged".

The introduction of the facility was mentioned earlier at the time of the RBI's monetary and credit policy in April this year.

Under the new scheme, the RBI will provide collateralised intra-day credit to banks and PDs. This will facilitate the settlement of securities transactions in case of a gridlock. Only banks and PDs who are eligible for a collateralised lending facility (CLF) and a liquidity support facility (LSF) from the RBI at the bank rate will be eligible for this.

Funds will be available intra-day on a collateralised basis to banks and PDs. These, however, will not be available for overnight credit, and will be available for settlements relating to transactions in dated-stock, T-Bills and state government paper through SGL accounts.

Further, funds will be given against undrawn CLF and PDs' liquidity support (PDLS). The drawal will be restricted to 95 per cent of the face-value of outstanding securities in the reverse-repo constituent SGL account of a participant after providing for successful bids in reverse-repo auctions.

The funds will be provided at bank rate and the interest cost will be shared equally among all beneficiary participants. A flat rate of Rs 25 per transaction will also be charged on them. The RBI will also apply a uniform margin on the transaction, and the transaction for this purpose will be reversed on the same day.

Explaining the new facility, the RBI said: "With the increase in government securities transactions, it is likely that transactions will fail due to a shortfall in funds on a gross basis in the current accounts of one or more SGL account holders, especially when the transactions are linked". The existing DVP system involves a simultaneous transfer of securities and funds in dated-stock. This does away with counter-party risks. Trades are settled on a gross-basis with an irrevocable final settlement taking place simultaneously for securities and funds.