G-secs: RBI unveils retail direct scheme

G-secs: RBI unveils retail direct scheme

Subject: Economics

Context :The RBI announced the unveiling of a scheme under which retail investors will be allowed to open retail direct gilt accounts (RDG) directly with the central bank.

Concept :

• RDG account can be opened through a dedicated online portal, which will provide registered users access to the primary issuance of government securities and to NDS-OM.
• NDS-OM is a screen based electronic anonymous order matching system for secondary market trading in government securities owned by RBI.
• The scheme aims at facilitating investment in government securities (G-secs) by individual investors.

G-Secs

• A Government Security (G-Sec) is a tradable instrument issued by the Central Government or the State Governments.
• It acknowledges the Government’s debt obligation.
• Such securities are short term (usually called treasury bills, with original maturities of less than one year- presently issued in three tenors, namely, 91 day, 182 day and 364 day) or long term (usually called Government bonds or dated securities with original maturity of one year or more).
• In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs).
• G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.
• Gilt-edged securities are high-grade investment bonds offered by governments and large corporations as a means of borrowing funds.