The apex bank also announced it will extend the period that foreign investors can settle their over-the-counter government bonds to two days of their trade from one.
The measure, traders said, could be aimed at facilitating the settlement of debt in the Euroclear platform to which India is planning to join soon.
Announcing the monetary policy, the central bank said it will cut the ceiling on HTM bonds from the current 24 per cent to 22 per cent in stages, starting in the two-week cycle from January 10, 2015.
Bank of India head V R Iyer said: "The guidelines for cut in HTM, spread over one year beginning January 2015, are a welcome step as it removes uncertainty on this issue. Banks can now better plan dilution from HTM."
Federal Bank MD Shyam Srinivasan said the move to bring down the ceiling on SLR securities under the HTM category will deepen the bond market.
The action could prompt banks to trade debt actively as it will reduce the incentive of parking securities until maturity and force them to mark more securities to market on a daily basis, leading to potential gains or losses, he said.
Further, the apex bank announced several steps related to trading in G-secs, including relaxing rules for short- selling, and said it would continue injecting funds via one- day term repos, or cash-for-loans transactions, to keep money markets less volatile.
RBI allowed banks to include government bonds held by them up to another 5 per cent of their NDTL (net demand and time liabilities) within the mandatory SLR requirement as level 1 quality liquid assets (HQLA) to facilitate their meeting the LCR requirement.