G-­Secs

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.

PWOnlyIAS

February 18, 2023

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. 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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