RBI MOPS UP 70 % OF 10 YEAR G-SEC BONDS

RBI MOPS UP 70 % OF 10 YEAR G-SEC BONDS

Subject: Economics

Context: The Reserve Bank of India has mopped up about 70 per cent of the benchmark 10-year Government Security (coupon rate: 5.85 per cent) the government has issued since December 1, 2020

Concept:

• It keeps the G-Sec yields under check and ensuring that banks have enough liquidity to subscribe at the weekly bond auctions.
• The current outstanding in the 10-year benchmark G-Sec is ₹1.05-lakh crore. Of this, around 70 per cent is with the RBI.
• The central bank has accumulated all this via open market operation (purchases), the G-Sec Acquisition Programme and via the secondary market.
• What this means is the RBI is providing liquidity to banks to encourage them to buy G-Secs at the weekly auctions.

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.