Trading volumes in government securities are set to get a boost with the entry of payments banks, mandated by the Reserve Bank to deploy all their resources in government papers, barring the cash reserve ratio balance. According to government bond dealers, bond yields will also find support if trading volumes in government bonds improve.
RBI said on Thursday in the draft guidelines for licensing these that payments banks will be required to invest all their money in government securities (G-Secs) or treasury bills with maturity up to a year.
"With more players like payments banks coming into the market, trading volumes in government securities are bound to improve. The yields will find some support with increased trading volumes," said Debendra Kumar Dash, associate vice-president (treasury), Development Credit Bank.
Banks trade very actively in the G-secs market. The other major participants here are insurance companies and mutual fund houses. The government bond market is considered more liquid than the corporate bond market. The daily average trading volumes in the G-secs market this month have been Rs 30,000 crore.
However, a few bond traders feel trading volumes will improve only gradually. "This is because initially only a couple of payments banks might come up. That will not make much of a difference. However, over a period of time, with more payments banks coming up, it shall help the government bond market," said a trader with a state-run bank.
