RBI’s new guidelines for government securities lending and borrowing are aiming at boosting bond market. Guidelines aim to boost liquidity, price discovery, and securities lending market participation.
On Wednesday, the RBI issued guidelines for lending and borrowing government securities to boost the bond market. A strong securities lending and borrowing market will provide depth and liquidity to the Government Securities (G-Sec) market, facilitating price discovery, according to an announcement.
After February comments, the RBI (Government Securities Lending) Directions, 2023 were finalized. Government Security Lending (GSL) allows central government G-Sec lending/borrowing, excluding Treasury Bills.
Lending assets from repo transactions, including RBI’s Liquidity Adjustment Facility, or GSL transactions is allowed, according to the announcement.
GSL transactions may also use T-Bills and state government bonds as collateral. RBI said the short sale duration is the maximum GSL maturity and one day is the minimum.
Special repos should benefit from G-Sec lending and borrowing. The strategy lets investors deploy idle securities and increase portfolio returns, increasing securities lending market participation.
Conclusion
The RBI has regulated government securities lending and borrowing to boost the bond market. The guidelines aim to boost G-Sec price discovery and liquidity. GSL transactions allow central government G-Sec lending/borrowing, except Treasury Bills. Minimum GSL tenor is one day; maximum is short sales.
