RBI issues draft norms for lending and borrowing of G-secs
Recently the Reserve Bank of India has released the draft norms for lending and borrowing of Government Securities (G-Secs).
The move is aimed at facilitating wider participation in the Government Securities Loan (GSL) market.
Salient Features of the Draft Norms
- Eligibility: Government securities issued by the Center are eligible for lending and trading under the GSL deal. It does not include Treasury Bills (T-bills). In contrast, government securities (including T-bills) issued by the central government and state governments will be used as collateral under the GSL.
- Eligible Participants: Entities eligible to undertake repo transactions and those approved by RBI.
- Tenure: Minimum 1 day and maximum 90 days.
- Securities borrowed under a GSL transaction will be eligible for the Statutory Liquidity Ratio (SLR) for the borrower (and not the lender). G-Secs are tradable instruments issued by the central or state government. They recognize the debt obligation of the government.
- Government securities are short term and long term. Short term securities are generally those with a maturity period of less than one year. These are called treasury bills.
- Long-term securities usually have a maturity period of one year or more. These are called government bonds or dated securities.
- The central government issues both T-bills and bonds or dated securities. State governments issue only bonds or dated securities, which are called State Development Loans (SDLs).
- G-Secs have practically no risk of default, hence they are called risk free gilt-edge instruments.
Source – The Hindu
