RBI Announces G-sec Acquisition Programme (G-SAP 1.0)
RBI Announces G-sec Acquisition Programme (G-SAP 1.0)
The Reserve Bank of India has recently announced the Government Security Acquisition Program – GSAP 1.0 for the financial year 2022.
Under this program, the central bank will purchase government bonds worth Rs 1 trillion.The primary purchase of authorities securities worth Rs. 25,000 crore under the G-sec Acquisition Programme (G-SAP 1.0) will probably be accomplished on April 15.
RBI will conduct open market purchase of authorities securities (G-secs) of worth Rs 1 lakh crore under the G-SAP 1.0 within the first quarter of this monetary 12 months.
Importance of Securities Acquisition Scheme:
- According to an RBI report, the government’s borrowing has increased this year. The Indian market is affected to a large extent by the increase in government borrowings.
- The RBI’s task is to ensure that there is no disruption in the Indian market with such loan borrowings. In this, GSAP 1.0 will provide more flexibility for the bond market.
- GSAP 1.0 bonds will help reduce the difference between the repo rate and income from ten-year government bonds.
Open Market Operations:
- Open market operations are one of the quantitative monetary policy instruments of the RBI, which regulate or control the total amount of money. It is used by the central bank to control the money supply in the economy.
- In this, the volume of money supply in the market is adjusted by RBI through the purchase and sale of government securities and treasury bills.
- Therefore, G-SAP will almost exclusively serve the purpose of the ‘Open market operations’ calendar, which has long been included in the bond market demand list.
- The Reserve Bank of India performs open market operations (OMOs) through commercial banks. Under this, it has no direct relation with the public.
OMO vs. Liquidity:
- When the RBI wants to increase liquidity in the monetary system, it will buy government securities in the open market. Thus the central bank provides liquidity to commercial banks.
- Conversely, to reduce liquidity under the economic system, government sells securities.
- In this way, the RBI controls the money supply indirectly from the market and affects short-term interest rates.
- The ‘open market operation’ tool is used by the RBI in two ways:
- First one is one-time purchase or sale of government securities; which is a permanent process.
- The second process is to repurchase securities. This is a short-term process.
GSAP 1.0
- Government borrowings have increased this year due to which, RBI has to ensure that there is no disruption in the Indian market; hence it will provide more convenience to the bond market.
- In the financial year 2021, the Reserve Bank of India purchased bonds worth 13 trillion from the secondary market.
- This program will help reduce the space between the ten-year government bond yield and the repo rate.
- It will also help in reducing the total cost of borrowing for the Center and States in FY 2022.
Government Securities:
- Government securities (G-Sec) are the highest securities issued by the Reserve Bank of India on behalf of the Government of India.
- Short-term securities – Generally these securities with maturity of less than one year are called treasury bills. Their time duration has three forms, 91 days, 182 days and 364 days.
- Long-Term Securities- These securities, usually of maturity of one year or more, are called government bonds or dated securities.
- Government securities in India are sovereign bonds issued by the Government of India to raise capital from the market. Since these bonds are backed by the government, they are considered risk-free.
Source – Website of Reserve Bank of India
[catlist]
