RBI on G-Sec: Reserve Bank gave New Year gift to investors! Will be able to earn money from government security

[ad_1]

RBI on G-Sec: On the New Year, the country’s top bank Reserve Bank of India has given a New Year gift to the investors. Making a major change in its rules, the apex bank has allowed investors to take and give loans in government securities. It is being told that the bank has issued these instructions to strengthen the bond market. A well-regulated market for lending and borrowing against securities will deepen and provide liquidity to the government securities (G-Sec) market. This will help in finding effective pricing of securities. However, treasury bills have been kept out of this. After the order, G-Secs issued by the Central Government will now be eligible for lending and borrowing. This work will be done under Government Securities Lending Transaction.

The draft was prepared in February

RBI had come up with the draft Government Securities Lending Guidelines, 2023 in February. The instructions have been finalized on the basis of comments received on this draft. According to a notification, G-Secs (except treasury bills) issued by the Central Government will be eligible for lending/borrowing under Government Securities Lending (GSL) transactions. According to the notification, securities acquired under repo transactions or borrowed under any other GSL transaction including the liquidity adjustment facility of RBI will also be eligible for lending under GSL transactions. Apart from this, government securities including treasury bills and bonds of state governments will be eligible for pledge under GSL transactions. RBI said that the minimum period of GSL transactions will be one day and the maximum period will be the maximum period prescribed to avoid short selling. Lending and borrowing of government securities is expected to enhance the existing market for ‘Special Repo’. This is expected to facilitate wider participation in the securities lending market by giving investors an opportunity to invest in passive securities and enhance portfolio returns.

what will be the effect

The latest order of the Reserve Bank of India will affect the bond trading in the market. Flexibility in lending and borrowing will deepen the government securities market and will also improve liquidity. This step of the bank will also help in better price discovery of government securities.

What is government security?

Government Security or G-Sec is a tradable instrument issued by the Central Government or State Governments. Government securities play an important role in the financial market, acting as a means for the government to borrow money from the public. These securities are considered safe investments because they are backed by the credibility and stability of the government. Government securities, also known as G-Secs, refer to debt instruments issued by the government to meet its financial needs. These securities are backed by the government’s guarantee of repayment and are considered risk-free investments. They are an integral part of the fixed income market and are traded in the government securities market. Government securities serve as a means for the government to raise money from the public to meet its expenditure requirements, bridge the budget deficit and fund developmental projects. Investors who buy these securities lend money to the government in exchange for regular interest payments and the principal amount on maturity.

There are following types of Government Security:

• Treasury bills (short-term government securities)

• Dated Securities (Long Term Government Securities)

• Cash Management Bill (CMB)

• state development loan

• Treasury Inflation-Protected Securities (TIPS)

• zero-coupon bond

• capital indexed bonds

• floating rate bond

• savings bonds

• Treasury notes

• treasury bond

,with language input,

[ad_2]

Source link