HELD TO MATURITY

HELD TO MATURITY

Subject: Economics

Context: RBI to hike banks’ HTM limit by 4% of book (Rs 6,136 billion/$84 billion), atop 2.5% in FY21, till FY26 (from FY23 now). This should incentivise banks to invest their money market surplus, of almost $80 billion, in G-secs .

Concept:

Held-to-maturity (HTM)

• Held-to-maturity (HTM) securities are purchased to be owned until maturity.
• Bonds and other debt vehicles—such as certificates of deposit (CDs)—are the most common form of held-to-maturity (HTM) investments.
• Held-to-maturity (HTM) securities provide investors with a consistent stream of income; however, they are not ideal if an investor anticipates needing cash in the short-term.
• HTM securities are only reported as current assets if they have a maturity date of one year or less. Securities with maturities over one year are stated as long-term assets.

Open Market Operations (OMOs)

• Open Market Operations (OMOs) are market operations conducted by RBI by way of sale/purchase of government securities to/from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis.
• If there is excess liquidity, RBI resorts to sale of securities and sucks out the rupee liquidity.
• Similarly, when the liquidity conditions are tight, RBI buys securities from the market, thereby releasing liquidity into the market.
• It is one of the quantitative (to regulate or control the total volume of money) monetary policy tools which is employed by the central bank of a country to control the money supply in the economy.