Government security (G-sec) is a form of security issued by the Government through a notification in the official Gazette. These securities are created by the Government to raise loans from the public or for any other purposes. A Government Promissory Note (GPN) payable to or to the order of a certain person; a bearer bond payable to a bearer; or a stock; or a bond held in a Bond Ledger Account (BLA) are examples of government securities. Commercial banks, Cooperative banks, Regional Rural Banks, Mutual Funds, Provident Funds, insurance companies, Primary Dealers, and other large investors are the buyers of Government securities.
While banks and insurance companies need Government securities to maintain their growing SLR requirements, the primary dealers participate in the auction for market making and positioning the securities for further sale in the secondary market. RBI Retail Direct is a one-stop solution for retail investors to invest in government securities. “To further improve the ease of access to retail investors, a mobile application of the Retail Direct portal is being developed. The app will enable investors to buy and sell instruments on the go, at their convenience.
Till the mid-eighties or the early nineties, the Government had been borrowing at sub-market rates, a system sustained by a captive market created by statutory reserve requirement. As a part of reforms, concessionary financing was eliminated with the introduction of a market auction system and phasing out of automatic monetisation with Ways and Means Advances (WMA). As yields became market-related and the Government started competing with the private sector in the market for funds, it had the desired impact on the G-Sec market as evidenced by rising secondary market activity and the near emergence of the market yield curve. The annual turnover in the market has grown from about Rs 2.8 lakh crore in 1998-99 to Rs. 56.3 lakh crore in 2007-08. The net amount mobilised through Treasury Bills (under competitive and non-competitive bidding) stood at ₹ 1,88,988 crore in Q1 2023-24. (Source: Dept. of Public Debt). Yields on G-Sec now provide a benchmark for the pricing of securities in other markets.
With reforms, G-Sec is no longer a captive market. Investment in G-Sec by the banks is based on their commercial judgment rather than being dictated by the reserve requirement. Since the late nineties, banks’ holding of G-Sec has been far more than the reserve requirement with the ratio going up to nearly 42 per cent of net demand and time liabilities. Banks progressively off-loaded excess investment in SLR securities given the strong credit demand.
The transformations of the following financial markets have created a robust ecosystem for financial transformation in India.
Transformation of the banking sector in India
Transformation of the Money market in India
Transformation of Government securities market
Transformation of the Foreign exchange market in India
Transformation of the Capital market in India
Transformation of the Credit market in India
Transformation of Payment Systems in India
