RBIs New Guidelines to Boost Government Securities Market

In a move to deepen the bond market, the Reserve Bank of India (RBI) has issued guidelines for lending and borrowing in government securities. A well-functioning market for securities lending and borrowing will add depth and liquidity to the Government Securities (G-Sec) market, aiding efficient price discovery.

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Draft Guidelines Finalized

In February, the central bank had released the draft RBI Government Securities Lending Directions, 2023. Based on the comments received on the draft, the directions have been finalized, according to a notification.

Eligible Securities

G-Secs issued by the central government, excluding Treasury Bills, would be eligible for lending/borrowing under a Government Security Lending (GSL) transaction. The securities obtained under a repo transaction, including through RBI's Liquidity Adjustment Facility or borrowed under another GSL transaction, would also be eligible to be lent under a GSL transaction.

Further, it said that G-Secs, including T-Bills and state government bonds, would be eligible for placing as collateral under a GSL transaction.

Maturity and Tenor

As regards maturity, RBI said the minimum tenor of a GSL transaction would be one day and the maximum would be the maximum period prescribed to cover short sales.

Benefits and Impact

The lending and borrowing of G-Secs are expected to augment the existing market for special repos. The system is expected to facilitate wider participation in the securities lending market by providing investors an avenue to deploy idle securities and enhance portfolio returns.

The RBI's guidelines for lending and borrowing in government securities are a positive step towards deepening the bond market and enhancing its liquidity. This will benefit investors, market participants, and the overall financial system.