Mumbai, Feb 8: RBI on Wednesday said it will allow the lending and borrowing of government securities as part of its ongoing endeavour to further develop the government securities market.
“This will provide investors with an avenue to deploy their idle securities, enhance portfolio returns and facilitate wider participation.
This measure will also add depth and liquidity to the G-sec market, aid efficient price discovery, and work towards a smooth completion of the market borrowing programme of the centre and states,” RBI Governor Shaktikanta Das said.
As part of the gradual move towards normalising liquidity and market operations, he said it has now been decided to restore market hours for the government securities market to the pre-pandemic timing of 0900 hrs to 1700 hrs.
Currently, mutual funds are allowed to borrow only to meet redemptions while life insurance companies are not allowed to borrow at all, a senior member of the treasury team at a Mumbai-based private bank said, speaking with Reuters Trading India.
The introduction of lending and borrowing in government bonds will curb the volatility in liquidity, said Nilesh Shah, managing director at Kotak Mahindra Asset Management Company.
“Shorters will have more avenues to acquire bonds, and this should minimise the risk of getting squeezed, which leads to exaggerated price moves,” a trader with a private bank said.