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RBI Allows Lending and Borrowing in Government Securities

The Reserve Bank of India issued guidelines on 27 December, 2023 to enhance the bond market by facilitating lending and borrowing in government securities. The presence of a well-functioning market for securities lending and borrowing is crucial as it enhances the depth and liquidity of the Government Securities (G-Sec) market. This, in turn, facilitates efficient price discovery.

According to a notification, the central bank has finalized the RBI (Government Securities Lending) Directions, 2023 after considering the comments received on the draft that was released in February, 2023.

The securities acquired through a repo transaction, such as those obtained through RBI’s Liquidity Adjustment Facility or borrowed under another GSL transaction, would qualify to be lent under a GSL transaction.

Additionally, it is stated in the guidelines that Government Securities (G-Secs), which include Treasury Bills (T-Bills) and state government bonds, would be considered eligible collateral for placement in a GSL transaction.

The Reserve Bank of India (RBI) has stated that the minimum duration for a GSL transaction will be one day, while the maximum duration will be determined based on the prescribed period required to cover short sales.

It is anticipated that the lending and borrowing of G-Secs will enhance the current market for ‘special repos‘.