Government of India Securities

Government of India securities (GOI securities), also called dated securi- ties, are medium- to long-term obligations of the government that are issued on its behalf by the central bank, the Reserve Bank of India (RBI), and are registered in the holder's name at the Public Debt Office of the RBI. The RBI also acts as the depository and maintains subsidiary gen- eral ledger accounts for banks and other select investors such as primary dealers, financial institutions, mutual funds, insurance companies, and provi- dent funds. FIIs have recently been permitted to invest in GOI securities and to repatriate the profits from the investments. Banks, nonbank fi- 1 2 and housing finance institutions (HFIs) are nance companies (NBFCs), required to invest in government securities to satisfy their statutory liquid- ity reserve (SLR) requirements. Dated securities usually have a maturity period of two to ten years, and the issue size varies from Rs 20 billion to Rs 50 billion.

The outstanding GOI securities as of 31 March 1998, excluding securities issued by public-sector units which carried a central or state government guarantee, amounted to about Rs 2,254 billion. In 1997-1998, primary auctions of GOI securities had yields ranging from 11.15 percent to 13.05 percent for securities with a maturity of three to ten years. To boost the retail sector and give greater liquidity to retail investors, the RBI in October 1997 allowed banks to buy GOI securities and then sell them at prevailing market prices immediately after. Previously, there had to be an interval of at least 30 days between the purchase and resale of the securities.

Sovereign Bonds

India has not yet issued sovereign bonds in the international market. The country's sovereign rating is based on the ratings assigned to bond and debenture issues of public-sector Indian companies in the international market. Despite the country's "low investment" or "high non - investment grade" ratings, Indian corporations have generally been able to obtain funds abroad on better terms than what the sovereign ratings might signify.

Some of the advantages of issuing sovereign bonds are:

• The government would have less need to borrow in the domestic market.
• Corporations could use the bonds as a benchmark against which they could price their issues.
• The bonds would broaden the investor base in the international markets and help mobilize long-term finance for infrastructure projects.
• The cost of borrowings would be reduced relative to the domestics market.