Recently, the Reserve Bank of India (RBI) has permitted the lending and borrowing of G-Securities (G-Secs) by issuing directions called RBI (Government Securities Lending) Directions, 2023.
About G-Securities (G-Secs)
- G-Sec is a tradable instrument issued by Central or State Governments. It acknowledges the government’s debt obligation.
- Short-term termed – Treasury bills (T Bills) – maturities of less than one year (91 days, 182 days, or 364 days)
- Long-term called Government bonds or dated securities with maturity of one year or more (between 5 years and 40 years).
- In India, Central Government issues both T bills and bonds or dated securities while 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.
- Other G-Sec includes Cash Management Bills (CMBs), introduced in 2010, a new short-term instrument to meet temporary cash flow mismatches of the Government. Like T-bills only but are issued for maturities of less than 91 days.
- G-Secs are issued through auctions conducted by RBI. Auctions are conducted on the electronic platform called the E-Kuber, the Core Banking Solution (CBS) platform of RBI.
Benefits of G-Secs
- Low-risk investments since they are backed by Government
- Stable source of income as they offer fixed interest rates
- Securities such as State Development Loans (SDLs) and Special Securities (Oil bonds, UDAY bonds etc) provide attractive yields.
- Integrating G-Secs in a diversified investment portfolio can help reduce overall risk
- Easily tradable in market, which means that investors can buy and sell them quickly
- Used as collateral to borrow funds in the repo market
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Initiatives taken for Government -Securities (G-Secs)
- G-sec Acquisition Programme (G-SAP): Under it, RBI conducts open market operations to purchase G-Secs from the market.
- It helps the central bank in controlling excessive volatility faced by market participants in the G-Secs market.
- RBI Retail Direct Scheme: Under this, retail investors will have the facility to open and maintain ‘Retail Direct Gilt Account’ (RDG Account) with RBI to access its G-Sec platform.
- Scheme for Non-competitive Bidding Facility in Auctions of G-Secs: