Shaktikanta Das, the Governor of Reserve Bank of India, in his keynote speech at 21st FIMMDA-PDAI Annual Conference yesterday, stated that notwithstanding the robust evolution of the G-sec market in India, there is scope for further development to remain in sync with the emerging requirements. He said that 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.
Das noted that expansion of the investor base is key to further development of the market. The RBI, together with the Government, is making efforts to enable international settlement of transactions in G-secs through International Central Securities Depositories (ICSDs). Once operationalized, 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. To encourage direct retail participation in G-secs, RBI has announced the 'Retail Direct' scheme, a one-stop solution to facilitate investment in government securities by individual investors.
The RBI governor stated that liquidity in G-secs market tends to dry up during periods of rising interest rates or in times of uncertainty. While the market for 'special repo' facilitates borrowing of securities, it is worthwhile to consider other alternatives that ensure adequate supply of securities to the market across the spectrum of maturities. It may be recalled that discussions were held on the introduction of Securities Lending and Borrowing Mechanism (SLBM) with a view to augment secondary market liquidity, by incentivizing 'buy and hold' type of investors (e.g., insurance companies, pension funds) to make available their securities to other market participants. Useful feedback was received on the subject from the FIMMDA and the PDAI.
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