The Reserve Bank of India (RBI) on Wednesday released guidelines for lending and borrowing in government securities in an effort to strengthen the bond market. The Government Securities (G-Sec) market will gain depth and liquidity via a healthy securities lending and borrowing market, which will facilitate effective price discovery, according to a notification.
In February, the central bank came out with the draft RBI (Government Securities Lending) Directions, 2023 and based on the comments received on the draft, the directions have been finalised. G-Secs issued by the central government, excluding Treasury Bills, would be eligible for lending/borrowing under a Government Security Lending (GSL) transaction.
Eligibility for 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, as per the notification.
Further, it said that G-Secs, including T-Bills and state government bonds, would be eligible for placing as collateral under a GSL transaction. 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 of G-Secs lending and borrowing
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.
(With inputs from PTI)
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