The Reserve Bank of India will allow banks to borrow and lend government bonds, the central bank chief said on Wednesday.

"We propose to permit lending and borrowing of g-secs (government securities). This will provide investors with an avenue to deploy their idle securities, enhance portfolio returns and facilitate wider participation," RBI Governor Shaktikanta Das said in his monetary policy address.

"This measure will also add depth and liquidity to the g-sec market," Das added.

Bond market participants said the facility would allow banks to borrow securities.

"Short selling would become a slightly easier process," a trader with a private bank said.