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Government Securities (G-Sec): Overview and Current Developments

The government has finalized its Government Securities (G-Sec) borrowing for the fiscal year 2023-24 and anticipates receiving a dividend from the Reserve Bank of India (RBI) in Financial Year 25, similar to what was received in FY 24. This cautious borrowing approach reflects the government's commitment to prudent fiscal management and alignment of borrowing with actual needs. The completion of G-Sec borrowing and expected RBI dividend underscore efforts to sustain fiscal stability and meet expenditure targets.

RBI Surplus Transfer Rules

• The RBI transfers its surplus to the government based on Section 47 of the Reserve Bank of India Act, 1934.
• A 2013 review by a technical committee led by Y.H. Malegam recommended higher government transfers.
• According to this section, the RBI transfers surplus funds to the government after setting aside provisions for reserves and retained earnings.
• The amount transferred depends on the RBI's income sources, such as interest on domestic and foreign securities, fees, commissions, foreign exchange transaction profits, and returns from subsidiaries.
• The RBI's expenses include currency note printing, interest payments, staff salaries and pensions, operational costs, and provisions for contingencies and depreciation.

What are Government Securities (G-Sec)?

Government Securities are tradable debt instruments issued by the Central or State Governments to raise funds and cover fiscal deficits. These securities confirm the government's debt obligation. G-Secs can be short-term (treasury bills with maturities under one year) or long-term (bonds or dated securities with maturities over one year). The Central Government issues both treasury bills and bonds, while State Governments issue only bonds, known as State Development Loans (SDLs). G-Secs are considered risk-free and are often referred to as gilt-edged securities.

Types of G-Secs

• Treasury Bills (T-bills): Short-term, zero-coupon securities sold at a discount and redeemed at face value at maturity.
• Cash Management Bills (CMBs): Introduced in 2010 to address short-term cash flow mismatches, CMBs are similar to T-bills but have maturities of less than 91 days.
• Dated G-Secs: These have fixed or floating coupon rates paid semi-annually, with tenors ranging from 5 to 40 years.
• State Development Loans (SDLs): Bonds issued by State Governments through auctions, similar to Central Government dated securities.

Issue Mechanism

The RBI conducts Open Market Operations (OMOs) to manage money supply by buying or selling G-Secs. Selling G-Secs removes liquidity from the market, while buying them injects liquidity. OMOs help balance inflation and bank lending. The RBI uses OMOs along with other monetary tools, such as repo rates, cash reserve ratios, and statutory liquidity ratios.

Retail Purchase and Sale of T-Bills

• Purchase Method: Retail investors can buy T-bills through an online Retail Direct Gilt (RDG) Account with the RBI or via select banks and primary agents.
• Portal: The RDG platform facilitates T-bill purchases for retail investors.
• Rules: Investors must follow specific regulations, including a minimum investment of INR 10,000 per lot. Compliance with RBI guidelines is required.
• Primary Market Participation: Retail investors can place bids for newly issued T-bills through designated channels.
• Secondary Market Participation: T-bills can also be traded in the secondary market through demat accounts before maturity, providing liquidity and trading opportunities.