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Government Securities

 

Government Securities (G-Secs) are securities issued by the Central Government or the State Government. These securities represent the market borrowings of the Centre and/ respective States. They are issued for financing the fiscal deficit and managing the temporary cash mismatches of the Government. Broadly, Government Securities can be classified as follows:

  1. Dated Government Securities
  2. State Development loans (SDLs)
  3. Treasury Bills

Dated G-Secs are those securities which are issued by the Central Government and are the most actively traded out of the three instruments. Similarly, SDLs, as the name suggests, refer to borrowings of the State Governments. Treasury Bills are shorter tenor securities, ranging from 91 Days to 364 Days, issued for the purpose of meeting short term liquidity mismatches of the Central Government.

G-Secs market is largely institutional in nature, though retail investments are permitted. Institutional players include Commercial banks, Primary Dealers, Insurance Companies, Co-operative banks, Regional Rural banks, Mutual Funds, Corporates, Provident and Pension funds. Foreign Institutional Investors (FIIs) too, are allowed to participate in the G-Secs market within the quantitative limits prescribed from time to time. These securities are generally held in Subsidiary General Ledger (SGL) accounts held with the RBI. In case entities do not have a direct account with RBI, they may open a Constituent SGL account with banks and Primary Dealers or convert them into dematerialized form in demat accounts maintained with the Depository Participants of NSDL.

Government securities are issued at par value (Rs 100) and have a coupon rate which is decided through the auction process at the time of issuance. The coupon interest payments are made on half-yearly basis and are redeemed at par value on maturity date. Interest payments are calculated based on 30/360 day count convention.

Government securities are highly liquid instruments available both in the primary and secondary market. In the primary market, Government securities are issued through auctions (yield based or price based auctions) conducted by RBI. There is a scheme of non-competitive bidding in these auctions wherein retail investors can participate for small amounts ranging from Rs 10,000 to Rs 2 cr (face value) in auctions of dated G-Secs and upto 1% of notified amount in auctions of SDLs.

The secondary market trading of G-Secs is undertaken on an electronic platform (known as Negotiated Dealing System Order Matching (NDS-OM), over the telephone (Over-the-Counter), NDS-OM Web and Stock exchanges. The settlement of all such trades takes place on T+1 basis (T+2 in case of FPIs) through the Clearing Corporation of India (CCIL) which guarantees the settlements. The market trades from 9 a.m to 5 p.m. from Monday to Friday.

 
 

Latest News

In its Fifth Bi-Monthly
In its Fifth Bi-Monthly Monetary Policy for FY19, the MPC-panel maintained ‘status quo’. Consequently, key policy rates remained unchanged - Repo rate at 6.50%, Reverse repo at 6.25% and MSF at 6.75%.
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Inflation projections for
Inflation projections for 2018-19 were revised downwards as food inflation has remained benign. It is projected at 2.7%-3.2%% in H2 FY19 (3.8%-4.5% previously) and 3.8%-4.2% in H1 FY20.
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Growth for FY19
Growth for FY19 is projected at 7.4% with 7.2%-7.3% in H2 FY19 (7.3%-7.4% previously). Growth in H1 FY20 is projected to stand at 7.5%.
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RBI in its February policy
RBI in its February policy cut the repo rate by 25 bps while also changing the stance to ‘neutral’ from ‘calibrated tightening’. Consequently, key policy rates are pegged as follows - Repo rate at 6.25%, Reverse Repo at 6.00% and Marginal Standing Facility (MSF) at 6.50%
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The inflation projections
The inflation projections have been revised downwards to 2.8% in Q4 FY19 (from 2.7-3.2% earlier), 3.2-3.4% in H1 FY20 (from 3.8-4.2% earlier) and 3.9% in Q3 FY20
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GDP growth for FY20
GDP growth for FY20 has been projected at 7.4% - in the range of 7.2-7.4% in H1 (from 7.5% earlier) and 7.5% in Q3.
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Spurring a positive surprise
Spurring a positive surprise, Jan CPI stood significantly lower than market expectations at 2.05% vis-à-vis the revised Dec-18 estimate of 2.11% (2.19% previously). Lack of inflationary pressures in the services components led core CPI to also moderate, clocking in at 5.38%, a sharp fall from 5.68% in Dec-18.
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Industrial production rose
Industrial production rose by 2.4% in Jan-19 as compared to 0.3% in Feb-18. Cumulatively, IIP for FY19 stood at 4.6%, lower than 3.7% in FY18. Significant sequential uptick was observed across sectors; Mining (3.4%), Electricity (2.1%) and Manufacturing (6.8%)
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Wholesale inflation for Jan-19
Wholesale inflation for Jan-19 came in at 2.76%, lower than 3.80% registered in Dec-18. Broad-based fall in commodity prices amid deflationary pressures from food and fuel items led to this downtick in inflation. Consequently, core WPI inched down to 2.91%, as compared to 4.22% in Dec-18.
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