3. Introduction
The Government needs large amount of carry on its welfare
activities
Government raises revenue by way of taxes and income from
ownership of assets
The most important sources for government’s borrowing is the
Government Securities Market
Government raises short-term and long-term funds by issuing
these securities
4. These are risk-free securities
These securities also called as Gilt-edged Securities
This market in India is the most dominant part of Debt Market
5. Features of government securities
Government securities are sovereign debt obligations of
government of India either central or any other authority of
government
Government securities include central government & state
government securities, Treasury bill and government guaranteed
bonds
The terms of government securities range from 2 to 30 years
6. Coupon or Interest offered on government securities are either
pre-determined by RBI or arrived through competitive bidding
or auction process
Coupons which are fixed, paid out semi-annually to the holder of
the security
7. Participants in government securities
Commercial banks
Provident funds & insurance companies
Primary dealers
8. Issuers of government securities
Central government
State government
Semi-Government authorities, like municipalities
IDBI, IFCI, NABARD, Housing Boards
9. Primary issuance process
Applicant for the issue
Firms, company, corporate body, institutions, state
government, commercial banks, provident fund, FIIs registered
with SEBI and approved by RBI can submit offers, including in
electronic form, for purchase of government securities
10. Denomination of government securities
Central government securities – the minimum is Rs.10,000 and
trading takes place in multiple of Rs.5 crores
State government securities – the minimum is Rs.1,000 and
trading takes place in multiple of Rs.1-5 crores
Government bonds - the minimum is Rs.5,000 and trading takes
place in its multiples
11. Process of issue
The government securities has been issued in auctions
Two types of auctions are held
- Uniform price auctions (Dutch auctions)
- Discriminatory price auctions (French Auction)
12. Primary dealers
Primary dealers are important intermediaries in the g-sec market
Guidelines for primary dealers issued by the RBI in March 1995
Act as underwriters in the primary debt market
Act as Market Makers in the secondary debt market
13. The objectives behind setting up the
system of primary dealers are
To strengthen the infrastructure in the government securities
market in order to make it vibrant, liquid and broad-based
To develop underwriting and market making capabilities for
government securities outside the reserve bank
To improve secondary market trading system that would
contribute to price discovery , enhances liquidity and turnover
for conducting open market open market operations
To make primary dealers an effective for conducting open
market operations
14. Secondary market for government
securities
Government securities get listed in secondary market after it get
issued
Participants have to report their trades to the PDO and effect
settlement through the SGL
SGL holders are expected to report their trades within 24 hours
The “last traded price “ is not observed in the secondary markets
The trade should be completed on the same and if the order is
placed by the broker then T + 2 mechanism has been followed
15. Settlement process
All trades in government securities are reported to RBI-SGL for
settlement
The trades are settled on DvP basis
In the settlement is security is transferred to customer's D-mate
ac
Transfer of funds is affected by crediting/debiting the current
account of the seller/buyer, maintained with the RBI
Clearing Corporation of India Limited (CCIL) it is the clearing
house of government securities market
16. Introduction to state government bonds
Meaning
State government and local bodies like municipalities etc.
play a crucial role in providing social and economic services like
public health, education, housing and urban Development. It
also helps in the development of infrastructure i.e. power
supply, irrigation facilities and transport. They are responsible
for executing Central Government policies and program.
17. Recourses for state government
Tax
Non-tax revenue
Grants and loans from the central government
State government bonds
