OMO on state government bonds could be a game changer, say experts

Selection of SDLs to create a basket in a cooperative federalism structure may be a challenge

The Reserve Bank of India’s decision to conduct secondary market purchases of state development loans (SDL), or bonds issued by states, is what investors needed to take these bonds seriously and start trading.
 

So far, the central bank has been assuring the markets that SDLs are safe, and there is an implicit guarantee on these bonds. The central bank maintains a consolidated sinking fund (CSF) from which market borrowings of states are serviced, and a guarantee redemption fund (GRF), which can be used if there is a default.
 

Still, foreign investors in particular have been reluctant to buy these bonds.