G-­Secs

Context: 

The Reserve Bank of India (RBI) came out with draft norms for lending and borrowing of government securities with wider participation in the securities lending market. 

• It says that lending transactions shall be undertaken for a minimum period of one day and a maximum period of ninety days.

What is Government Security (G-Sec)?

• A Government Security (G-Sec) is a tradable instrument issued by the Central Government or the State Governments. 
• It acknowledges the Government’s debt obligation. 
• Such securities are short-term (usually called treasury bills, with original maturities of less than one year) or long-term (usually called Government bonds or dated securities with original maturity of one year or more). 
• In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called State Development Loans (SDLs). 
• G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.

Dated G-Secs:

• Dated G-Secs are securities that carry a fixed or floating coupon (interest rate) which is paid on the face value, on a half-yearly basis. 
• Generally, the tenor of dated securities ranges from 5 years to 40 years.

Repurchase (buyback) of G-Secs:

• Repurchase (buyback) of G-Secs is a process whereby the Government of India and State Governments buy back their existing securities, by redeeming them prematurely, from the holders. 
• The objectives of buyback can be 

1. 1. Reduction of cost (by buying back high coupon securities)
   2. Reduction in the number of outstanding securities
   3. Improving liquidity in the G-Secs market (by buying back illiquid securities) and infusion of liquidity in the system.

Trading in G-Secs:

• There is an active secondary market in G-Secs. 
• The securities can be bought/sold in the secondary market either through 
  • Negotiated Dealing System-Order Matching (NDS-OM) (anonymous online trading) or through
  • Over the Counter (OTC) and reported on NDS-OM
  • NDS-OM-Web  
  • Stock exchanges 

News Source: The Hindu 

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