Why is it in the News?

In a bid to deepen the bond market, the Reserve Bank of India on Wednesday issued guidelines for lending and borrowing in government securities.

What are Government Securities?

• Government securities, also known as G-Secs, refer to the debt instruments issued by the government to finance its fiscal requirements.
• These securities are backed by the government’s guarantee of repayment and are considered risk-free investments.
• They are an integral part of the fixed-income market and are traded on the government securities market.
• Government securities serve as a means for the government to raise funds from the public to meet its expenditure needs, bridge budget deficits, and fund developmental projects.
• Investors who purchase these securities lend money to the government in return for regular interest payments and the principal amount at maturity.
• These securities come in mainly two categories:
  • Short-Term: Often known as “Treasury Bills,” these have initial maturities of less than a year.
  • Long-Term: Typically referred to as Government Bonds or Dated Securities, these have an original maturity of one year or more.
• In India, the Central Government issues both treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called State Development Loans (SDLs).

Treasury Bills (Short-Term G-Secs)

• Treasury Bills, commonly known as T-Bills, are short-term government securities with a maturity period of less than one year.
• They are issued at a discount to their face value and are highly liquid instruments.
• T-Bills serve as a mechanism for the government to efficiently manage its short-term funding requirements.

 Dated Securities (Long-Term G-Secs)

• Dated Securities are long-term government securities with a fixed maturity period, typically 5 to 40 years.
• They pay regular interest to investors, known as coupon payments, and return the principal amount at maturity.
• Dated Securities are vital for financing long-term projects and meeting government borrowing needs.