Clearing, Settlement and Custody (Operations Management Series (Securities Institute).)

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The Bonds shall be repayable on the expiration of eight years from the date of issue of the Bonds. Pre-mature redemption of the Bond is permitted after fifth year of the date of issue of the Bonds and such repayments shall be made on the next interest payment date. The bonds under SGB Scheme may be held by a person resident in India, being an individual, in his capacity as an individual, or on behalf of minor child, or jointly with any other individual.

Nominal Value of the bonds shall be fixed in Indian Rupees on the basis of simple average of closing price of gold of purity published by the India Bullion and Jewelers Association Limited for the last three business days of the week preceding the subscription period. The Bonds shall bear interest at the rate of 2. Interest shall be paid in half-yearly rests and the last interest shall be payable on maturity along with the principal. The redemption price shall be fixed in Indian Rupees and the redemption price shall be based on simple average of closing price of gold of purity of previous 3 business days from the date of repayment, published by the India Bullion and Jewelers Association Limited.

The above subscription limits, interest rate discount etc.

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There is no maximum limit for investment in these bonds. Interest on these Bonds will be taxable under the Income Tax Act, as applicable according to the relevant tax status of the Bond holders. These Bonds will be exempt from wealth-tax under the Wealth Tax Act, CDD No.

SDLs are dated securities issued through normal auction similar to the auctions conducted for dated securities issued by the Central Government please see question 3. Interest is serviced at half-yearly intervals and the principal is repaid on the maturity date. Investment in gold has attendant problems in regard to appraising its purity, valuation, warehousing and safe custody, etc. In comparison, investing in G-Secs has the following advantages:. They can be held in book entry, i.

Clearing, Settlement and Custody (Operations Management Series (Securities Institute).)

They can also be held in physical form. G-Secs are available in a wide range of maturities from 91 days to as long as 40 years to suit the duration of varied liability structure of various institutions. The settlement system for trading in G-Secs, which is based on Delivery versus Payment DvP , is a very simple, safe and efficient system of settlement.

The DvP mechanism ensures transfer of securities by the seller of securities simultaneously with transfer of funds from the buyer of the securities, thereby mitigating the settlement risk. G-Sec prices are readily available due to a liquid and active secondary market and a transparent price dissemination mechanism. Besides banks, insurance companies and other large investors, smaller investors like Co-operative banks, Regional Rural Banks, Provident Funds are also required to statutory hold G-Secs as indicated below:.

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Such liquid assets shall be in the form of cash, gold or unencumbered investment in approved securities. The exposure of a trust to any individual gilt fund, however, should not exceed five per cent of its total portfolio at any point of time. Commercial banks, scheduled UCBs, Primary Dealers a list of Primary Dealers with their contact details is given in Annex 2 , insurance companies and provident funds, who maintain funds account current account and securities accounts Subsidiary General Ledger SGL account with RBI, are members of this electronic platform.

All members of E-Kuber can place their bids in the auction through this electronic platform. A Gilt Account is a dematerialized account maintained with a scheduled commercial bank or PD. A Notification and a Press Communique giving exact particulars of the securities, viz. RBI places the notification and a Press Release on its website www.

The investors are thus given adequate time to plan for the purchase of G-Secs through such auctions. A specimen of a dated security in physical form is given at Annex 1. A sample of the auction calendar and the auction notification are given in Annex 3 and 4 , respectively.

Clearing, Settlement and Custody (Paperback)

The Reserve Bank releases a quarterly calendar of T-bill issuances for the upcoming quarter in the last week of the preceding quarter. The Reserve Bank of India announces the issue details of T-bills through a press release on its website every week.

The tenor, notified amount and date of issue of the CMBs depend upon the temporary cash requirement of the Government. The tenors of CMBs is generally less than 91 days. The announcement of their auction is made by Reserve Bank of India through a Press Release on its website. The non-competitive bidding scheme referred to in paragraph number 4. However, these instruments are tradable and qualify for ready forward facility.

First set of CMB was issued on May 12, In terms of Sec. Under Article 3 of the Constitution of India Under section 48A of Union territories Act, in case of Union Territory , a State Government has to obtain the permission of the Central Government for any borrowing as long as there is any outstanding loan that the State Government may have from the Centre.

Market borrowings are raised by the RBI on behalf of the State Governments to the extent of the allocations under the Market Borrowing Program as approved by the Ministry of Finance in consultation with the Planning Commission. RBI, in consultation with State Governments announces, the indicative quantum of borrowing on a quarterly basis. Before every auction, respective state governments issue specific notifications indicating details of the securities being issued in the particular auction.

RBI places a press release on its website and also issues advertisements in leading English and vernacular newspapers of the respective states. Currently, SDL auctions are held generally on Tuesdays every week. What are the different types of auctions used for issue of securities? Prior to introduction of auctions as the method of issuance, the interest rates were administratively fixed by the Government.

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With the introduction of auctions, the rate of interest coupon rate gets fixed through a market-based price discovery process. Investors bid in yield terms up to two decimal places e.

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Bids are arranged in ascending order and the cut-off yield is arrived at the yield corresponding to the notified amount of the auction. The cut-off yield is then fixed as the coupon rate for the security. Successful bidders are those who have bid at or below the cut-off yield. Bids which are higher than the cut-off yield are rejected. An illustrative example of the yield-based auction is given below:.

Price Based Auction: A price based auction is conducted when Government of India re-issues securities which have already been issued earlier.


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Bids are arranged in descending order of price offered and the successful bidders are those who have bid at or above the cut-off price. Bids which are below the cut-off price are rejected. An illustrative example of price based auction is given below:. In a Uniform Price auction, all the successful bidders are required to pay for the allotted quantity of securities at the same rate, i.

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In the example under ii above, if the auction was Uniform Price based, all bidders would get allotment at the cut-off price, i. Competitive bids are made by well-informed institutional investors such as banks, financial institutions, PDs, mutual funds, and insurance companies.

Multiple bidding is also allowed, i. Retail investor, for the purpose of scheme of NCB, is any person, including individuals, firms, companies, corporate bodies, institutions, provident funds, trusts, and any other entity as may be prescribed by RBI. Regional Rural Banks RRBs and Cooperative Banks shall be covered under this Scheme only in the auctions of dated securities in view of their statutory obligations and shall be eligible to submit their non-competitive bids directly.

State Governments, eligible provident funds in India, the Nepal Rashtra Bank, Royal Monetary Authority of Bhutan and any Person or Institution, specified by the Bank, with the approval of Government, shall be covered under this scheme only in the auctions of Treasury Bills without any restriction on the maximum amount of bid for these entities and their bids will be outside the notified amount. Under the Scheme, an investor can make only a single bid in an auction. Allocation of non-competitive bids from retail investors except as specified above will be restricted to a maximum of five percent of the aggregate nominal amount of the issue within the notified amount as specified by the Government of India, or any other percentage determined by Reserve Bank of India.

In the auctions of GoI dated securities, the retail investors can make a single bid for an amount not more than Rupees Two crore face value per security per auction. Such costs may be built into the sale price or recovered separately from the clients. It may be noted that no other costs, such as funding costs, should be built into the price or recovered from the client.

In case the aggregate amount of bids is less than the reserved amount, the shortfall will be taken to competitive portion.