Real-time intervention in G-secs only after April 06

Mumbai, Nov 29 | Updated: Nov 30 2004, 05:30am hrs
The Reserve Bank of India (RBI) may intervene in the government securities market either directly or through primary dealers (PDs) on a real-time basis after it stops participating in the primary issues of gilts post April 2006.

In view of the fact that its participation in the primary issues of government securities (G-Secs) would be withdrawn from April 1, 2006, as stipulated by the Fiscal Responsibility and Budget Management Act 2003, RBI said that a review of processes and technological infrastructure consistent with market advancements would be warranted.

This may necessitate RBIs intervention in the market directly or through PDs on a real-time basis, said the central bank in its latest Report on Trend and Progress of Banking in India 2003-04.

The report also said that the central bank has decided to permit sale of a G-Sec already contracted for purchase, provided the contract is guaranteed by CCIL or is contracted from RBI and provided the contract is confirmed prior to the sale.

Further, the sale transaction should settle either in the same settlement cycle as the preceding purchase contract, or in a subsequent cycle so that the delivery obligation under the sale of contract would be met by the securities acquired under the purchase contract, said the report.

The RBI is also planning to shift the settlement of G-Sec transactions carried through CCIL to the DvP-III mode, so that each security is deliverable/ receivable on a net basis for a particular settlement cycle as against the earlier system of gross settlement of securities under the DvP-II mode, said the report.

It may be recalled that the mid-term review of the annual policy for 2004-05 had also proposed to constitute a study group for strengthening the open market operations (OMO) framework.

Also, in a further attempt to broaden and deepen the securities market, RBI had extended the facility of settlement in G-Sec transactions over NDS-CCIL system besides the settlement under Delivery versus Payment system to all participants.