Skip to main content

What are Dated Government Securities?

Governments raise / borrow funds by issuing government securities to finance a variety of projects and activities.

What is Government Security (G-Sec)?

Government Security (G-Sec) is a tradeable instrument issued by the Central Government or the State Governments. 

G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.

What are the types of G-Secs?

Government securityTermIssued by
Treasury Bills (T-bills)Short-termCentral Government
Cash Management Bills (CMBs)Short-termCentral Government
Bonds or Dated G-SecsLong-termCentral Government
State Development Loans (SDLs)Long-termState Governments

What are dated G-Secs?

Dated G-Secs are securities which carry a fixed or floating coupon (interest rate) which is paid on the face value, on half-yearly basis. 

What are the features of dated G-Secs?

  • The tenor of dated G-Secs ranges from 5 years to 40 years.
  • Dated G-Secs carry a fixed or floating coupon.
  • Interest on dated G-Secs is paid on the face value, on half-yearly basis.

How are dated G-Secs named?

The nomenclature of a typical dated fixed coupon G-Sec contains the following features – coupon, name of the issuer, maturity year. For example, 7.17% GS 2028 would mean –

  • Coupon – 7.17% paid on face value
  • Name of Issuer – Government of India
  • Maturity – 2028

In case, there are two securities with the same coupon and are maturing in the same year, then one of the securities will have the month attached as suffix in the nomenclature. eg. 6.05% GS 2019 FEB, would mean that G-Sec having coupon 6.05% that mature in February 2019 along with the other similar security having the same coupon. 

Auction and Settlement of dated G-Secs

  • Auction for dated G-Secs is conducted on Friday.
  • The minimum bid amount for dated G-Secs is ₹10,000 and in multiples thereof.
  • Bids can be places by investors under both Competitive Bidding and Non- Competitive Bidding. The aggregate allocation of all non-competitive bids is restricted to a maximum of 5% of the aggregate nominal amount of the issue within the notified amount.
  • In the auctions of dated G-Secs, the retail investors can make a single bid for an amount not more than ₹2 crore (face value) per security per auction.
  • Settlement for the dated G-Secs is made on T+1 day i.e. on the working day following the trade day. On the settlement date, the fund accounts of the participants are debited by their respective consideration amounts and their securities accounts are credited with the amount of securities allotted to them. 

What are the types of dated G-Secs?

Fixed Rate Bonds – 

  • The coupon rate is fixed for the entire life (i.e. till maturity) of the bond. 
  • Most Government bonds in India are issued as fixed rate bonds.

Floating Rate Bonds (FRB) – 

  • It does not have a fixed coupon rate. 
  • It has a variable coupon rate which is re-set at pre-announced intervals (say, every 6 months or 1 year). 
  • It can also carry the coupon, which will have a base rate plus a fixed spread, to be decided by way of auction mechanism. The spread will be fixed throughout the tenure of the bond. 

Zero Coupon Bonds – 

  • Bonds with no coupon payments. 
  • It is issued at a discount and redeemed at face value. 

Capital Indexed Bonds – 

  • The principal is linked to an accepted index of inflation with a view to protecting the principal amount of the investors from inflation. 

Inflation Indexed Bonds (IIBs) – 

  • Both coupon flows and principal amounts are protected against inflation. 
  • The inflation index used in IIBs may be Wholesale Price Index (WPI) or Consumer Price Index (CPI). 

Bonds with Call / Put Options – 

  • It is issued with features of optionality wherein the issuer can have the option to buy-back (call option) or the investor can have the option to sell the bond (put option) to the issuer during the currency of the bond. 
  • Such bond may have put only / call only / both options.

Special Securities – 

  • The Government of India issues special securities to entities like Oil Marketing Companies, Fertilizer Companies, Food Corporation of India, etc. (popularly called oil bonds, fertiliser bonds and food bonds respectively) as compensation to these companies in lieu of cash subsidies.
  • These securities are usually long dated G-Secs and carry a marginally higher coupon over the yield of the dated G-Secs of comparable maturity. 
  • These securities are not eligible as Statutory Liquidity Ratio (SLR) securities but are eligible as collateral for market repo transactions. 
  • The beneficiary entities may divest these securities in the secondary market to banks, insurance companies / Primary Dealers, etc., for raising funds.

Separate Trading of Registered Interest and Principal of Securities (STRIPS)

  • STRIPS are securities created by way of separating the cash flows associated with a regular G-Sec i.e. each semi-annual coupon payment and the final principal payment to be received from the issuer, into separate securities. For example, when ₹100 of the 8.60% GS 2028 is stripped, each cash flow of coupon (₹ 4.30 each half year) will become a coupon STRIP and the principal payment (₹100 at maturity) will become a principal STRIP. These cash flows are traded separately as independent securities in the secondary market. 
  • They are Zero Coupon Bonds (ZCBs). 
  • They are created out of existing securities only and unlike other securities, are not issued through auctions. 
  • Stripped securities represent future cash flows (periodic interest and principal repayment) of an underlying coupon bearing bond.
  • STRIPS are eligible for SLR. 
  • All fixed coupon securities issued by Government of India, irrespective of the year of maturity, are eligible for Stripping / Reconstitution, provided that the securities are reckoned as eligible investment for the purpose of SLR and the securities are transferable. 

Sovereign Gold Bond (SGB)

  • The bonds are denominated in units of one gram of gold and multiples thereof. 
  • Minimum investment in the bonds shall be one gram with a maximum limit of subscription per fiscal year of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the Government. In case of joint holding, the limits shall be applicable to the first applicant only. Annual ceiling include bonds subscribed under different tranches during initial issuance by Government and those purchased from the secondary market.
  • The bonds shall be repayable on the expiration of 8 years and pre-mature redemption is permitted after 5th year of the date of issue of the bonds. 
  • Nominal Value of the bonds shall be fixed in Indian Rupees on the basis of simple average of closing price of gold of 999 purity published by the India Bullion and Jewelers Association Limited for the last 3 business days of the week preceding the subscription period / date of repayment.
  • The issue price will be ₹50 per gram less than the nominal value to investors applying online and making payment through digital mode. 
  • The bonds shall bear interest at the rate of 2.50% (fixed rate) per annum on the nominal value, paid in half-yearly rests. 
  • SGBs acquired by the banks through the process of invoking lien / hypothecation / pledge alone shall be counted towards SLR. 

7.75% Savings (Taxable) Bonds, 2018

  • These bonds may be held by individual and Hindu Undivided Family (HUF).
  • There is no maximum limit for investment in these bonds. 
  • These are issued at par for a minimum amount of ₹1,000 (face value) and in multiples thereof.


References

Reserve Bank of India. (2020, April 01). 'Government Securities Market in India – A Primer'. Retrieved from https://www.rbi.org.in/Scripts/FAQView.aspx?Id=79


Follow at - Telegram   Instagram   LinkedIn   Twitter   Facebook

Comments

Popular Posts

Report of the Committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the Financial Sector

Reserve Bank of India (RBI) has released the report of the committee to develop a framework for responsible and ethical enablement of artificial intelligence (FREE-AI) in the financial sector. Committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the Financial Sector In the financial sector, Artificial Intelligence (AI) has the potential to unlock new forms of customer engagement, enable alternate approaches to credit assessment, risk monitoring, fraud detection, and offer new supervisory tools. At the same time, increased adoption of AI could lead to new risks like bias and lack of explainability, as well as amplifying existing challenges to data protection, cybersecurity, among others. To encourage the responsible and ethical adoption of AI in the financial sector, the committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the Financial Sector (Chairperson: Dr. Pushpak B...

Continuous Clearing and Settlement on Realisation in Cheque Truncation System (CTS)

Reserve Bank of India (RBI) has issued direction on continuous clearing and settlement on realisation in Cheque Truncation System (CTS). What is Cheque Truncation System (CTS)? Cheque Truncation System (CTS) involves halting the physical movement of the cheque and its replacement by images of the instrument and the corresponding data contained in the MICR line.  In CTS, 3 images are taken of each cheque – front Gray Scale, front Black & White and back Black & White. MICR (Magnetic Ink Character Recognition) is a 9-digit code printed at the bottom of cheques using magnetic ink – first 3 digits indicate City Code, middle 3 digits indicate Bank Code and the last 3 digits indicate Bank Branch Code. Only CTS-2010 standards compliant instruments can be presented for clearing through CTS. The presenting banks which truncates the cheques need to preserve the physical instruments for 10 years. From when will the continuous clearing and settlement on realisation in CTS be implemented...

What is KYC?

Be it opening a new bank account, applying for a new credit card, registering for new e-wallet, or any other account or facility involving financial matters, the application process is incomplete until KYC is done.  What is KYC? KYC or Know Your Customer is a process of customer identification and verification while opening an account or undertaking a financial transaction. Why is KYC process needed? To prevent money laundering To combat financing of terrorism What is verified under KYC? The banks / financial institutions collect the relevant documents from the customers to verify the following – Proof of identity Proof of address Which documents can be collected for KYC? As per RBI’s Master Direction - Know Your Customer (KYC) Direction, 2016 (Updated as on May 10, 2021), “Officially Valid Document” (OVD) means – Passport Driving licence Proof of possession of Aadhaar number Voter's Identity Card issued by the Election Commission of India Job card issued by NREGA duly signed by an...

Non-Fund Based Credit Facilities

Reserve Bank of India (RBI) has issued directions on non-fund based credit facilities. To whom shall the directions be applicable? The directions shall apply to the following Regulated Entities (REs) for all their Non-Fund Based (NFB) exposures such as guarantee, letter of credit, co-acceptance etc. Commercial Banks (including Regional Rural Banks and Local Area Banks) Primary (Urban) Co-operative Banks (UCBs) / State Co-operative Banks (StCBs) / Central Co-operative Banks (CCBs) All India Financial Institutions (AIFIs) Non-Banking Financial Companies (NBFCs) including Housing Finance Companies (HFCs) in Middle Layer and above, only for the issuance of Partial Credit Enhancement. The directions shall not apply to the derivative exposures of a RE. Which NFB facilities are permitted to be issued by RE? RE shall issue a NFB facility only on behalf of a customer having funded credit facility from the RE. However, this shall not be applicable in respect of – Derivative contracts entered int...

Committees to be constituted by NBFC-BL

Non-Banking Financial Companies (NBFCs) are required to constitute various committees for effective corporate governance. This article lists out some of the important committees to be constituted by the Base Layer NBFCs (NBFC-BL). Board of Directors Applicability Companies Act, 2013 Section 149(1) – Every company shall have a Board of Directors. Composition of the Board Companies Act, 2013 Section 149(1) – The Board of Directors shall consist of individuals as directors – Public company – minimum 3 directors Private company – minimum 2 directors One Person Company – minimum 1 director  Maximum 15 directors (more than 15 directors may be appointed after passing a special resolution) Section 149(4) – Every listed public company shall have at least 1/3rd of the total number of directors as independent directors. Companies (Appointment and Qualifications of Directors) Rules, 2014 Rule 3 – The following companies shall appoint at least 1 woman director – Every listed company Every other...