{"id":14768,"date":"2021-04-12T00:00:00","date_gmt":"2021-04-12T00:00:00","guid":{"rendered":"https:\/\/www.nextias.com\/current_affairs\/uncategorized\/12-04-2021\/g-sap-securities-acquisition-plan-for-market-boost\/"},"modified":"2021-04-12T00:00:00","modified_gmt":"2021-04-12T00:00:00","slug":"g-sap-securities-acquisition-plan-for-market-boost","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/12-04-2021\/g-sap-securities-acquisition-plan-for-market-boost","title":{"rendered":"G-SAP: Securities Acquisition Plan for Market Boost"},"content":{"rendered":"<p><strong>In News<\/strong><\/p>\n<p>The Reserve Bank of India will conduct the open market purchase of government securities of ?1 lakh crore under the <strong>G-sec Acquisition Programme (G-SAP 1.0)<\/strong> in FY22.<\/p>\n<p><strong>About <\/strong><\/p>\n<ul>\n<li>G-SAP will run alongside RBI&#8217;s regular operations including <strong>Liquidity Adjustment Facility <\/strong>(LAF),<strong> OMOs<\/strong> and<strong> operation twist<\/strong>, adding that the programme is built into the central bank&#8217;s liquidity planning framework for 2021-22 as a whole.<\/li>\n<li>The RBI will purchase the government securities through a <strong>multi-security auction<\/strong> using the <strong>multiple price method<\/strong>.<\/li>\n<li>It will purchase five types of government securities via a multi-security auction using multiple price methods.<\/li>\n<\/ul>\n<p><strong>Significance <\/strong><\/p>\n<ul>\n<li>It will provide more comfort to the bond market. As the borrowing of the Government increased this year, RBI has to ensure there is <strong>no disruption in the Indian market<\/strong>.<\/li>\n<li>This open market purchase will be conducted with a view to enabling a <strong>stable and orderly evolution of the yield curve<\/strong>.<\/li>\n<li>It will help to <strong>reduce the spread between the repo rate<\/strong> and the ten-year government bond yield.<\/li>\n<li>It will almost serve the purpose of an OMO calendar, which had been on the bond market\u2019s wish list for a long time<\/li>\n<\/ul>\n<table border=\"1\" cellspacing=\"0\" style=\"width:624px\">\n<tbody>\n<tr>\n<td style=\"background-color:#fff2cc; width:6.5in\">\n<p><strong>What is Government Security (G-Sec)?<\/strong><\/p>\n<ul>\n<li>It is a <strong>tradable instrument <\/strong>issued by the Central Government or the State Governments.<\/li>\n<li>It acknowledges the Government\u2019s debt obligation. Such securities are short term <strong>(usually called treasury bills<\/strong>, with <strong>original maturities of less than one yea<\/strong>r) or <strong>long term<\/strong> (usually called <strong>Government bonds or dated securities with an original maturity of one year or more). <\/strong><\/li>\n<li>In India, the Central Government issues both treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the <strong>State Development Loans (SDLs). <\/strong><\/li>\n<li>G-Secs carry <strong>practically no risk of default<\/strong> and, hence, are <strong>called risk-free gilt-edged instruments.<\/strong><\/li>\n<\/ul>\n<p><strong>Open Market Operations<\/strong><\/p>\n<ul>\n<li>It is the sale and purchase of government securities and treasury bills by RBI or the central bank of the country. The objective of OMO is to <strong>regulate the money supply<\/strong> in the economy.<\/li>\n<li>When the central bank wants to <strong>infuse liquidity<\/strong> into the monetary system, it will <strong>buy government securities<\/strong> in the open market. This way it provides commercial banks with liquidity.<\/li>\n<li>In contrast, when it <strong>sells securities, it curbs liquidity<\/strong>. Thus, the central bank indirectly controls the money supply and influences short-term interest rates.<\/li>\n<\/ul>\n<p><strong>Liquidity Adjustment Facility (LAF)<\/strong><\/p>\n<ul>\n<li>It is a tool used in monetary policy, primarily by the Reserve Bank of India (RBI) that allows banks to <strong>borrow money through repurchase agreements (repos)<\/strong> or to make loans to the RBI through reverse repo agreements.<\/li>\n<li>This arrangement is effective in <strong>managing liquidity pressures<\/strong> and assuring<strong> basic stability<\/strong> in the financial markets.<\/li>\n<li>\u00a0In the United States, the Federal Reserve transacts repos and reverse repos under its open market operations.<\/li>\n<li>The RBI introduced the LAF as a result of the Narasimham Committee on Banking Sector Reforms (1998).<\/li>\n<\/ul>\n<p><strong>Treasury Bills (T-bills)<\/strong><\/p>\n<ul>\n<li>Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, <strong>91 day, 182 days and 364 days. <\/strong><\/li>\n<li>Treasury bills are <strong>zero-coupon securities and pay no interest.<\/strong><\/li>\n<\/ul>\n<p><strong>Cash Management Bills (CMBs)<\/strong><\/p>\n<ul>\n<li>In 2010, the Government of India, in consultation with RBI introduced a new <strong>short-term instrument<\/strong>, known as Cash Management Bills (CMBs), to meet <strong>the temporary mismatches in the cash flow<\/strong> of the Government of India.<\/li>\n<li>The CMBs have the generic character of T-bills but are issued for maturities less than 91 days.<\/li>\n<\/ul>\n<p><strong>\u00a0Dated G-Secs<\/strong><\/p>\n<ul>\n<li>Dated G-Secs are securities that carry a <strong>fixed or floating coupon (interest rate)<\/strong> which is paid on the<strong> face value, on a half-yearly basis<\/strong>. Generally, the tenor of dated securities <strong>ranges from 5 years to 40 years.<\/strong><\/li>\n<li>The Public Debt Office (PDO) of the Reserve Bank of India acts as the registry\/depository of G-Secs and deals with the issue, interest payment and repayment of principal at maturity.<\/li>\n<li>Most of the dated securities are fixed coupon securities.<\/li>\n<\/ul>\n<p><strong>Operation Twist <\/strong><\/p>\n<ul>\n<li>RBI\u2019s <strong>simultaneous sales and purchases <\/strong>of government securities termed <strong>&#8216;Operation Twist\u2019 and it<\/strong> is a way to manage yields in the market.<\/li>\n<li>\u00a0It is a program of <strong>quantitative easing<\/strong> used by the RBI that was first introduced by the <strong>Federal Reserves in the US in 1961.<\/strong><\/li>\n<li>It is designed to induce downward pressure on longer-term interest rates by lowering long-term Treasury yields.<\/li>\n<li>The central bank buys long-term notes with the proceeds from short-term bills.<\/li>\n<li>This increases demand for Treasury notes. Just like any other assets, as demand rises, so does the price. But higher bond prices are offset by a lower yield for investors.<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><a href=\"https:\/\/indianexpress.com\/article\/explained\/g-sap-rbi-market-7263221\/\" target=\"_blank\" rel=\"noopener\">Source :IE<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In News The Reserve Bank of India will conduct the open market purchase of government securities of ?1 lakh crore under the G-sec Acquisition Programme (G-SAP 1.0) in FY22. About G-SAP will run alongside RBI&#8217;s regular operations including Liquidity Adjustment Facility (LAF), OMOs and operation twist, adding that the programme is built into the central [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":14769,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[26,46],"class_list":["post-14768","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-current-affairs","tag-gs-3","tag-indian-economy-related-issues"],"acf":[],"jetpack_featured_media_url":"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2023\/07\/228630current-affairs.jpg","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/14768","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=14768"}],"version-history":[{"count":0,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/14768\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media\/14769"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=14768"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=14768"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=14768"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}