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Overseas settlement of G-sec deals on anvil: Das

GS Paper 3

Topics covered: Indian economy- issues related to growth and planning

 

Context: The Reserve Bank of India (RBI) is planning to enable international settlement of transactions in government securities (G-secs) through International Central Securities Depositories (ICSDs)

More on the news

  • This proposal would expand the investor base for the G-secs market
  • Once operationalised, this will enhance access of non-residents to the G-secs market, as will the inclusion of Indian G-secs in global bond indices
  • An international CSD settles trades in international securities such as eurobonds although many also settle trades in various domestic securities, either directly or through local agents. International CSDs include Clearstream, Euroclear and SIX SIS.

What is a G-sec?

Government security applies to a range of investment products offered by a governmental body. Government securities come with a promise of the full repayment of invested principal at maturity of the security. Some government securities may also pay periodic coupon or interest payments. These securities are considered conservative investments with a low-risk since they have the backing of the government that issued them.

G- Sec prices fluctuate sharply in the secondary markets. Factors affecting their prices:

  1. Demand and supply of the securities.
  2. Changes in interest rates in the economy and other macro-economic factors, such as, liquidity and inflation.
  3. Developments in other markets like money, foreign exchange, credit and capital markets.
  4. Developments in international bond markets, specifically the US Treasuries.
  5. Policy actions by RBI like change in repo rates, cash-reserve ratio and open-market operations.

 

Insta curious links

Know more about ICSD- Click here

 

Prelims Link:

  1. What are G-Secs?
  2. Short and long term securities.
  3. Powers of the Centre and states to issue these instruments.
  4. Role of RBI.
  5. Factors which affect the prices of these securities.

Mains Link:

What are G-Secs? Why are they significant? Discuss.

Source