Dated Government Securities

The Government securities comprise dated securities issued by the Government of India and state governments. Government paper with tenor beyond one year is known as dated security. The date of maturity is specified in the securities therefore it is known as dated government securities.

The Government borrows funds through the issue of long term-dated securities, the lowest risk category instruments in the economy. These securities are issued through auctions conducted by RBI, where the central bank decides the coupon or discount rate based on the response received. Most of these securities are issued as fixed interest bearing securities, though the government sometimes issues zero coupon instruments and floating rate securities also. In one of its first moves to deregulate interest rates in the economy, RBI adopted the market driven auction method in FY 1991-92. Since then, the interest in government securities has gone up tremendously and trading in these securities has been quite active. They are not generally in the form of securities but in the form of entries in RBI's Subsidiary General Ledger (SGL).

The investors in government securities are mainly banks, FIs, insurance companies, provident funds and trusts. These investors are required to hold a certain part of their investments or liabilities in government paper. Foreign institutional investors can also invest in these securities up to 100% of funds-in case of dedicated debt funds and 49% in case of equity funds.

Till recently, a few of the domestic players used to trade in these securities with a majority investing in these instruments for the full term. This has been changing of late, with a good number of banks setting up active treasuries to trade in these securities. Perhaps the most liquid of the long term instruments, liquidity in gilts is also aided by the primary dealer network set up by RBI and RBI's own open market operations.