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The RBI has recently proposed the introduction of securities lending and borrowing for government securities (G-sec) through its Draft Reserve Bank of India (Government Securities Lending[1]) Directions, 2023. This change is meant to give investors a chance to make money by putting their unused securities to use in the securities lending market. The proposal has the potential to revolutionize the Indian securities market, and in this blog post, we take a closer look at the proposal and its potential implications.
Investors can lend their government securities to other market participants for a fee under the plan. In return, the borrower puts up cash or other securities as collateral. When the transaction is over, the cash or other securities are returned. Some of the key features of the proposed scheme are:
Securities lending and borrowing for (G-sec) can be good for both market participants and the market as a whole in a number of ways. Some of these benefits are:
Overall, the introduction of securities lending and borrowing for government securities can provide several potential benefits for market participants and the market as a whole. By improving liquidity, optimizing the use of securities, enhancing market depth, improving access to borrowing, and increasing flexibility, the G-sec market can become more efficient and transparent.
In conclusion, Government Securities Lending (GSL) is a promising initiative proposed by the Reserve Bank of India to provide investors with an opportunity to earn returns by deploying idle securities in the securities lending market. The scheme is expected to encourage wider participation in the market, which in turn could help boost the liquidity of government securities. G-secs, on the other hand, are government securities or government bonds that governments use to borrow money. They carry the lowest risk of all investments, making them a safe investment option for investors. With the introduction of GSL, investors can now potentially earn returns on their G-secs, further enhancing the appeal of these securities. Overall, the RBI’s move to introduce GSL is expected to benefit both investors and the government, by providing a more efficient and transparent market for government securities transactions.
Also Read:RBI Recent Guidelines on Government Securities MarketRBI’s Retail Direct Scheme to facilitate investment in G-SecsMandatory Norms under RBI Regulations on Digital Lending
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