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), to help expandthe investor base for the G-secs market, RBI Governor Shaktikanta Das said on Tuesday.
“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,” he said, while delivering the keynote address at the 21st Annual Conference of FIMMDA and PDAI through a video link.
The governor called for further development of the G-secs market in India to add to the robustness of financial markets. “Notwithstanding the robust evolution of the G-sec market in India, there is scope for further development to remain in sync with emerging requirements,” he said
“Secondary market liquidity, as measured by the turnover ratio, is found to be relatively low on several occasions and tends to remain concentrated in a few securities and tenors. The yield curve accordingly displays kinks, reflecting the liquidity premium commanded by select securities / 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,” he added.
Highlighting that the liquidity in the G-secs market tended to dry up during periods of rising interest rates or in times of uncertainty, he said it was worthwhile to consider alternatives that ensure adequate supply of securities to the market across the spectrum of maturities.
Emphasising that the interest rate derivatives (IRD) market had developed over the years with the availability of a wide range of products, he said the only major liquid product continued to be the Mumbai Interbank Offer Rate-based Overnight Indexed Swaps market.
He said it was an opportune time to consider new instruments to facilitate hedging of long-term interest rates and reinvestment risk by market participants such as insurance companies, provident and pension funds and corporates.
The Governor said the RBI would endeavour to ensure adequate liquidity in the G-secs market as an integral element of its effort to maintain comfortable liquidity conditions in the system.