The Reserve Bank of India (RBI), together with the government, is making efforts to enable international settlement of transactions in G-secs through International Central Securities Depositories (ICSDs), Governor Shaktikanta Das said speaking at the 21st FIMMDA-PDAI Annual conference.
"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, for which efforts are ongoing," Das said.
Expansion of the investor base is key to further development of the government securities market in India, Das said on August 31.
To encourage retail participation in G-Sec market, the RBI had announced the ‘Retail Direct’ scheme, a one-stop solution to facilitate investment in government securities by individual investors.
On expanding the base of the participants, he added, the regulatory provision for issuance of Separate Trading of Registered Interest and Principal of Securities (STRIPS) has been made to facilitate the development of a zero-coupon yield curve and to attract retail investors to the G-sec market.
Das said going forward it would desirable for the RBI and market bodies like FIMMDA and PDAI to work together and popularize STRIPS and how niche products targeted at retail investors also include sovereign gold bonds and saving bonds.
He emphasized that there is scope for further development to remain in sync with the emerging requirements with notwithstanding the robust evolution of the G-sec market in India.
Das highlighted that the measurement of secondary market liquidity by turnover ratio is found to be relatively low on several occasions and remains concentrated in a few securities and tenors. He said, “To a certain extent, this is the result of the market microstructure in India, dominated as it is by ‘buy and hold’ and ‘long only’ investors. We need to develop a yield curve that is liquid across tenors.”
The RBI has also set out a roadmap for the gradual restoration of the variable rate reverse repo (VRRR) auction as the main operation under the revised liquidity management framework announced on February 6, 2020.He added that the Reserve Bank will conduct fine-tuning operations from time to time as needed to manage unanticipated and one-off liquidity flows so that liquid conditions in the system are evolved in a balanced and evenly distributed manner.