10.6 Government Securities Market

  • 10.6.1 The Government securities market is the principal segment of the Indian debt market. Its importance lies in facilitating market borrowings by the Government, enabling the pricing of other debt instruments of varying risk perceptions, and bringing about an effective and reliable transmission channel for the use of indirect instruments of monetary policy. In fact, the interest rates on Government securities act as a benchmark for pricing securities in the rest of the financial markets. Thus, the information that is disseminated with respect to the Government securities market is critical and watched on a real time basis by the rest of the market participants.
  • 10.6.2 The Government securities consist of both the Central and State Government securities. RBI acts as the debt manager for the Centre and the States. As a debt manager, RBI is not only the issuer but also procedurally maintains a record of ownership and the transactions that take place in Government securities. RBI is also the regulator of the market for Government securities.
  • Current Status
    • 10.6.3 Data for the Government securities market are mainly generated, compiled and disseminated by RBI. RBI also publishes all relevant data pertaining to the Government securities market on a daily, weekly, monthly and annual basis.
    • 10.6.4 The intended fresh borrowing programme of the Government is made public through the Union Budget. The fresh borrowings are operationalised by RBI in consultation with the Government. RBI releases data on market borrowings of the Central and State Governments, secondary market transactions, its open market operations and Repurchase Agreement (repo) transactions both through press releases and through its website on a daily basis. Data relating to auction results are released through press releases and the RBI website on the date of the auction itself. In addition, data relating to secondary market transactions, open market operations, yield on Government securities, market borrowings of the Central and State Governments, ownership of Central and State Government securities, maturity pattern of Government of India Rupee loans, repo auctions by RBI, and interest rates on Central and State Government dated securities are published in various publications of RBI such as Weekly Statistical Supplement, Monthly Bulletin, Annual Report and the Handbook of Statistics on Indian Economy. The data on guarantees by the Central and State Governments are also collected individually from these Governments either through the budget or directly from the Ministry of Finance of the respective Governments and published annually by RBI.
    • 10.6.5 The RBI has embarked upon the technological upgradation of the debt market. The operations of the Public Debt Office (PDO) are being automated to provide connectivity between different PDOs, and to facilitate on-line screen-based execution for trade and settlement in Government securities transactions. The computerisation of PDO (expected to be operationalised within a year), will facilitate screen-based negotiated dealings in Government securities, tendering of screen-based applications in auctions, full-fledged audit trail, debt servicing, information dissemination, price list for open market operations, central information system for access by monitoring and regulatory authorities, etc. The RBI is also separately putting in place a real time gross settlement system (RTGS), which is scheduled to be made operational within the same time frame. An offshoot of this would be that information would be available to all market participants on a real-time basis.
    • 10.6.6 The RBI manages the Public Debt and issues new loans on behalf of the Central and State Governments under the powers derived from Sections 17, 20, 21, and 21A of the Reserve Bank of India Act, 1934. The Government securities and their management by RBI are governed by the Public Debt Act, 1944, the procedures prescribed for which are outdated and some of the provisions of which have ceased to be of relevance in the present context. A new legislation titled, the ‘Government Securities Act’ proposes to repeal and replace the Public Debt Act. The new Act, which seeks to recognise the electronic mode of transfer of title of Government securities, will facilitate pledging of securities without actual transfer and will recognise depositories other than RBI for paperless transfer. The new Act will also give flexibility to allow Government securities to be held in depositories while at the same time, specifically excluding Government securities from the purview of Depositories Act, 1996. Further, the RBI has been recently delegated the responsibility, by amending the Securities Contracts (Regulation) Act, 1956, to regulate any contracts in Government securities, and in securities derived from these securities and in relation to ready forward contracts in bonds, debentures, debenture stock, securitised and other debt securities.
  • Deficiencies
    • 10.6.7 First, while the data on market borrowings by the Central Government are disseminated regularly on weekly basis through the Weekly Statistical Supplement, data on State Government securities are not available on a regular basis during the year. Secondly, the data on secondary market transactions, yield and turnover in Government securities are at present accounted through the Subsidiary General Ledger (SGL), covering about 98 per cent of the total transactions. However, detailed data on ownership pattern of Central and State Government securities are not available. Earlier, detailed data were available on the ownership pattern based on ad hoc surveys conducted by the RBI since 1958. The last such survey was conducted by RBI for the period ended March 1990, and the results were published in the RBI Bulletin, December 1994. Presently, data on the ownership pattern are disseminated annually in terms of broad categories consisting of scheduled commercial banks, LIC, Provident Funds, Central and State Governments. Thirdly, data on the maturity profile of State Government loans are not released, though such data for the Central Government loans are released annually. The maturity pattern of the Government of India Rupee loans outstanding over the years, classified into various periods, is released annually. However, no such data are available for the State Governments. Fourthly, scrip-wise details for the Central and State Government loans are also not made available now. However, in the case of Central and some State Governments, scrip-wise details are available in their respective annual budgets. Finally, although not technically part of the Government securities market, the most important data gap pertains to the absence of detailed information in relation to instruments backed by guarantees of Central and State Governments.
  • Conclusions and Recommendations
    • 10.6.8 It is observed that the data disseminated by RBI on the Government securities market compares well with international standards. Significant improvements have been undertaken in the recent past. Technological improvements underway provide further avenues for improving the system. However, the Commission recommends that to further improve the transparency in the operations of the Government securities markets, the following data should be compiled and disseminated:
      • Data on ownership pattern of Central and State Government securities are released on an annual basis for a broad category of investors. However, no data on ownership pattern are disseminated on a monthly and quarterly basis. Therefore, monthly and quarterly data with wider coverage should be made available.
      • The maturity profile of outstanding State Government loans are not released, though such data, for the Central Government are released annually. Therefore, the outstanding market loans of the Central and State Governments separately, scrip-wise, as well as aggregate year-wise, should be released regularly on an annual basis.
      • There are areas where dissemination of market borrowings of State Governments is not at par with that for the Central Government. This gap needs to be bridged. First, data on Central Government market borrowings, budgeted and actuals and gross and net, are released regularly on a weekly, quarterly and annual basis. However, such data are not available for State Governments. Hence, details of market borrowing programmes of State Governments, allocations and actuals, auction and pre-announced coupons should be released regularly, preferably on a quarterly basis. Secondly, data on maturity pattern of the Government of India Rupee loans outstanding at the end of the year classified into different periods with a 5-yearly interval are released on an annual basis. Data on maturity pattern, on a similar basis, should be extended to include State Government loans. Further, residual maturity by original coupon rates should also be published.
      • The Government-guaranteed bonds are not treated as part of Government securities but as an integral part of the corporate debt. However, in view of the sovereign guarantee extended and the large magnitudes of such securities in the debt market, they deserve to be separately identified as a category, and data collected and disseminated. RBI should take up with the Central and State Governments and the regulator for other securities to mount an information system for this purpose.
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