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The RBI is planning to permit lending and borrowing of Government Securities (G-secs) as part of its ongoing endeavour to further develop the G-Secs market.
The central bank said this will provide investors with an avenue to deploy their idle securities, enhance portfolio returns, and facilitate wider participation.
“This measure will also add depth and liquidity to the G-sec market, aid efficient price discovery, and work towards a smooth completion of the market borrowing programme of the Centre and States,” per RBI statement.
RK Gurumurthy, Head-Treasury, Dhanlxmi Bank, said: “The G-Sec market should see improving liquidity with the announcement of lending/borrowing of G-Secs. Is it a precursor to the other much-awaited global index inclusion announcement? It is too early to say.”
Market hours extended
As part of the RBI’s gradual move towards normalising liquidity and market operations, it has decided to restore market hours for the G-Sec market to the pre-pandemic timing of 9 am to 5 pm from February 13.
The trading hours for various markets regulated by the Reserve Bank were amended with effect from April 7, 2020, in view of the operational dislocations and elevated levels of health risks posed by Covid.
Restoration of market hours in a phased manner was commenced with effect from November 9, 2020, and market hours in respect of call/notice/term money, market repo and tri-party repo in government securities, commercial papers, certificates of deposit and rupee interest rate derivatives traded outside the recognised stock exchanges have since been restored to pre-pandemic level.
SBI’s economic research department, in a report, said RBI green signal to permit lending and borrowing in G-Secs should be having far reaching consequences for major domestic players as also overseas investors, subject to norms.
“At present Govt Securities are borrowed/lent through CROMS platform. Further, G-Sec held by insurance companies and duration mutual fund are not available for short sellers to cover shorts (since lending stock in repo means borrowing by them which is not permitted). The proposed development will allow G-sec holders to deploy idle G-Sec to generate higher returns.
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