Context:
The inclusion of Indian government bonds (G-Secs) in JP Morgan’s bond indices could draw foreign fund inflows in the range of $30-$40 billion.
About G-Sec:
- It is a tradeable instrument issued by the Central Government or the State Governments.
- In India, the Central Government issues both, treasury bills and bonds or dated securities
- State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs).
- It acknowledges the Government’s debt obligation and practically carries no risk of default and, hence, is called risk-free gilt-edged instruments.
About Gilt Account:
- It means an account opened and maintained for holding Government securities, by an entity or a person permitted by the Reserve Bank of India.
- In case of a ‘Person resident outside India’, the activities in the operations/maintenance of Gilt Account shall be governed by the Foreign Exchange Management Act (FEMA), 2000 and the regulations framed there under.
Operational mechanism of G-Secs in India:
- Issuing Authority – RBI, in consultation with the Government of India.
- Issuing Platform – E-Kuber, Core Banking Solution (CBS) platform of RBI for G-Secs auctions.
- All non-E-Kuber members including non-scheduled Urban Cooperative Banks (UCBs) can participate in the primary auction through scheduled commercial banks or Primary Dealers (PDs) (called as Primary Members-PMs).
- Clearing Agency – Clearing Corporation of India Limited (CCIL) acts as the Central Counter Party (CCP), i.e., act as a seller to the buyer and a buyer to the seller of the actual transaction.
Other types of G-Secs:
- Treasury Bills (T-Bills) –
- They are money market instruments, and hence short-term debt instruments issued by the Government of India.
- Presently issued in 3 tenors, namely, 91-day, 182 day and 364 days.
- They are zero coupon securities and pay no interest.
- Instead, they are issued at a discount and redeemed at the face value at maturity.
- Cash Management Bills (CMBs) –
- A short-term instrument introduced by Government of India, in consultation with RBI to meet the temporary mismatches in the cash flow of the Government of India.
- They have the generic character of T-bills but are issued for maturities less than 91 days.
- Dated G-Secs –
- They are securities which carry a fixed or floating coupon (interest rate) which is paid on the face value, on half-yearly basis.
- Generally, the tenor of dated securities ranges from 5 years to 40 years.
- State Development Loans (SDLs) –
- They are dated securities issued through normal auction similar to the auctions conducted for dated securities issued by the Central Government.
Source: The Hindu
Previous Year Question
Consider the following statements:
1. The Reserve Bank of India manages and services Government of India Securities but not any State Government Securities.
2. Treasury bills are issued by the Government of India and there are no treasury bills issued by the State Governments.
3. Treasury bills offer are issued at a discount from the par value.
Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 3 only
(c) 2 and 3 only
(d) 1, 2 and 3
Answer: (c)
