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RBI Facilitates Lending and Borrowing of G-Secs

By Amigos IAS

Why is it in the news?

  • The Reserve Bank of India (RBI) has implemented Government Securities Lending (GSL) Directions, 2023.

More about the news

  • GSL refers to the lending of eligible Government Securities (G-Secs) for a fee, from the owner (lender) to a borrower. This lending is done against collateral in the form of other G-Secs and for a specified period.
  • G-Secs issued by the Central government, excluding Treasury Bills (T-Bills), are eligible for lending/borrowing.
  • Under GSL transactions, G-Secs issued by the Central Government, including T-Bills, and State Government bonds are eligible for use as collateral.

Objectives:

  • Permitting lending and borrowing of G-Secs aims to add depth and liquidity to the G-sec market, facilitating efficient price discovery.
  • The move is expected to expand participation in the securities lending market by investors.
  • GSL is anticipated to enhance the operational efficiency of government bonds, particularly for insurers.

 

About Government Securities (G-Secs)

·       G-Sec is a tradeable instrument issued by the Central or state Governments, acknowledging the government’s debt obligation.

·       G-Secs can be short-term, known as Treasury Bills (T-Bills), with maturities of less than one year, or long-term, referred to as Government bonds or dated securities with a maturity of one year or more.

·       G-Secs carry virtually no risk of default, earning them the designation of risk-free gilt-edged instruments.

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