RBI implements govt securities lending directions with immediate effect

The Reserve Bank of India (RBI) on Wednesday implemented the Government Securities Lending Directions, 2023, effective immediately.

In February of the same year, the central bank had released draft norms for lending and borrowing of government securities aimed at expanding participation in the securities lending market. The central bank had sought input from banks, market participants, and other stakeholders. The RBI has now finalized and issued the directions based on the received comments.

The initiative was closely associated with the lending and borrowing of government bonds by insurance companies. Given the substantial holdings of government bonds by insurers, this move is expected to lead to increased liquidity, enhance operational efficiency, and contribute to more efficient price discovery.

As outlined in the notification by the RBI, government securities issued by the central government (excluding Treasury Bills) are eligible for lending and borrowing in Government Securities Lending (GSL) transactions. Furthermore, both government securities issued by the central government (including Treasury Bills) and those issued by state governments are eligible for use as collateral in GSL transactions.