Central Government Securities & State Government Bonds


Introduction Features of government securities Participants in government securities

Issuers of government securities
Primary issuance process Primary dealers Secondary market for government securities

Settlement process
Introduction to state government bonds Recourses for state government

 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

 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

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

 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

Participants in government securities
 Commercial banks  Provident funds & insurance companies

 Primary dealers

Issuers of government securities
 Central government  State government

 Semi-Government authorities, like municipalities
 IDBI, IFCI, NABARD, Housing Boards

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

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.15 crores
 Government bonds - the minimum is Rs.5,000 and

trading takes place in its multiples

Process of issue
 The government securities has been issued in

 Two types of auctions are held

- Uniform price auctions (Dutch auctions) - Discriminatory price auctions (French Auction)

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

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


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

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 a\c
 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

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.

Recourses for state government
 Tax  Non-tax revenue  Grants and loans from the central government  State government bonds

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