Topic

Central Government Securities & State Government Bonds

MADE BY : AKSHAY VIRKAR

Agenda
Introduction Features of government securities Participants in government securities

Issuers of government securities

Primary issuance process Primary dealers Secondary market for government securities

Settlement process
Introduction to state government bonds Recourses for state government

Introduction
The Government needs large amount of carry on its

welfare activities
Government raises revenue by way of taxes and

income from ownership of assets

The most important sources for governments

borrowing is the Government Securities Market

Government raises short-term and long-term funds

by issuing these securities

 These are risk-free securities These securities also called as Gilt-edged Securities This market in India is the most dominant part of

Debt Market

Features of government securities

Government securities are sovereign debt

obligations of government of India either central or any other authority of government

Government securities include central government &

state government securities, Treasury bill and government guaranteed bonds

The terms of government securities range from 2 to

30 years

 Coupon or Interest offered on government securities

are either pre-determined by RBI or arrived through competitive bidding or auction process
Coupons which are fixed, paid out semi-annually to

the holder of the security

Participants in government securities

Commercial banks Provident funds & insurance companies

Primary dealers

Issuers of government securities

Central government State government

Semi-Government authorities, like municipalities

IDBI, IFCI, NABARD, Housing Boards

Primary issuance process

Applicant for the issue

Firms, company, corporate body, institutions, state government, commercial banks, provident fund, FIIs registered with SEBI and approved by RBI can submit offers, including in electronic form, for purchase of government securities

Denomination of government securities

Central government securities the minimum is

Rs.10,000 and trading takes place in multiple of Rs.5 crores

State government securities the minimum is

Rs.1,000 and trading takes place in multiple of Rs.15 crores

Government bonds - the minimum is Rs.5,000 and

trading takes place in its multiples

Process of issue
The government securities has been issued in

auctions
Two types of auctions are held

- Uniform price auctions (Dutch auctions) - Discriminatory price auctions (French Auction)

Primary dealers
Primary dealers are important intermediaries in the

g-sec market
Guidelines for primary dealers issued by the RBI in

March 1995
Act as underwriters in the primary debt market

Act as Market Makers in the secondary debt market

The objectives behind setting up the system of primary dealers are

To strengthen the infrastructure in the government

securities market in order to make it vibrant, liquid and broad-based

To develop underwriting and market making

capabilities for government securities outside the reserve bank

To improve secondary market trading system that

would contribute to price discovery , enhances liquidity and turnover

for conducting open market open market

operations

Secondary market for government securities

Government securities get listed in secondary

market after it get issued

Participants have to report their trades to the PDO

and effect settlement through the SGL

SGL holders are expected to report their trades

within 24 hours
The last traded price is not observed in the

secondary markets

Settlement process
All trades in government securities are reported to

RBI-SGL for settlement

The trades are settled on DvP basis

In the settlement is security is transferred to

customer's D-mate a\c

Transfer of funds is affected by crediting/debiting the

current account of the seller/buyer, maintained with the RBI

Clearing Corporation of India Limited (CCIL) it is the

Introduction to state government bonds

Meaning

State government and local bodies like municipalities etc. play a crucial role in providing social and economic services like public health, education, housing and urban Development. It also helps in the development of infrastructure i.e. power supply, irrigation facilities and transport. They are responsible for executing Central Government policies and program.

Recourses for state government

Tax Non-tax revenue Grants and loans from the central government State government bonds