Repo Market Fundamentals

These markets are where financial instruments like bonds, stocks, and currencies are bought and sold.

Measures taken by the Reserve Bank of India to improve the efficiency, integrity, and accessibility of financial markets.

Making it simpler and more efficient for companies to raise money from investors.

The process by which the central bank influences financial markets through interest rates and other policy tools.

The key components of India's financial markets include money markets, government securities market, foreign exchange market, and the equity market.

Eliminating barriers between domestic and international markets, allowing free movement of capital and instruments.

The RBI Act of 1934, particularly Chapter IIID, provides the legal framework for the Reserve Bank's regulation of India's financial markets.

Making it easier for a wider range of investors to participate in financial markets.

The Reserve Bank works to promote the growth of financial markets while also ensuring their stability and integrity.

Offering a broader range of financial products and services, facilitating innovation and meeting diverse needs.

Ensuring the reliability and security of financial markets and their infrastructure.

The transition from a centrally controlled system to a more market-driven system in India's financial markets, starting in the 1990s.

These are transactions conducted directly between two parties, without going through an exchange.

Enforcing rules and standards to guarantee fair and ethical conduct by all participants in the financial markets.

Market representative bodies empowered by the Reserve Bank of India to develop self-regulatory mechanisms within their respective segments.

These are standardized financial instruments traded on organized exchanges, offering transparency and price discovery.

A method of borrowing (or lending) funds by selling (or buying) securities with a promise to repurchase (or resell) them at a later date at a determined price, including interest.

A method of borrowing or lending funds between institutions or individuals, where the lender provides funds and the borrower gives collateral in the form of securities.

A type of repo transaction where the Reserve Bank of India (RBI) is involved, used for managing liquidity in the banking system.

A type of repo transaction between market participants, excluding the RBI, used for short-term borrowing or lending of funds.

The process of lending funds to a borrower with the agreement to buy back the securities sold at a later date (the repurchase agreement).

Securities that can be used as collateral for repo transactions. Allowed securities include government securities, Treasury Bills, Commercial Papers, Certificates of Deposits, Units of Debt Exchange Traded Funds, and listed Corporate bonds and debentures.

An electronic platform used for trading repo transactions on government securities. It facilitates anonymous transactions through a trading system.

A type of Repo transaction conducted outside of recognized exchanges or electronic platforms. These transactions are typically done directly between two parties.

A well-developed corporate bond market offers a less expensive way for companies to borrow money for long periods, compared to traditional bank loans.

A corporate bond market helps institutions like insurance companies find long-term investments that match their own long-term obligations.

A healthy corporate bond market spreads financial risk across a wide range of investors, making the entire financial system more stable.

The Reserve Bank of India (RBI) has encouraged banks to issue long-term bonds to fund infrastructure and housing projects. These bonds are exempt from certain reserve requirements.

The RBI allows banks to provide partial credit enhancement (PCE) to encourage more investors to participate in the corporate bond market.

The RBI sets rules for how banks and other financial institutions can participate in the corporate bond market. It also helps to regulate foreign investment in corporate bonds.

The RBI has taken steps to encourage larger companies to raise a portion of their funding through the bond market, rather than solely relying on banks.

The RBI has taken initiatives to make it easier for foreign investors to buy Indian corporate bonds, including raising investment limits and introducing new investment routes.

A separate channel introduced in 2019 to encourage long-term debt investment in India by FPIs, offering greater flexibility in instrument choice and exemption from regulatory limits.

A market where investors can buy or sell government securities that have been announced but not yet issued. This happens between the announcement and the actual issuance date.

A separate channel introduced in 2020 for non-residents to invest in specific Government of India Bonds, free from macroprudential limits and investment ceilings.

The inclusion of Indian Government Bonds (IGBs) in major global bond indices, making them more accessible and attractive to international investors.

Measures taken to make it easier for Foreign Portfolio Investors (FPIs) to invest in India, including easing margin requirements for their transactions in government bonds.

Allowing non-residents, including FPIs, to participate in domestic derivative markets, enabling them to manage interest rate, foreign exchange, and credit risks.

Permitting FPIs to invest in debt securities issued by Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs).

Measures aimed at reducing risks for investors by providing a more predictable and stable environment for investment in government bonds.

A market mechanism enabling participants to buy and sell government securities (G-Secs) at prices determined by market forces.

A type of financial instrument created by separating the interest payments (coupons) and principal repayment of a G-Sec into individual components, which can then be traded separately.

Increases liquidity in the G-Sec market, allowing institutions to borrow or lend securities, facilitating efficient price discovery and short-selling options.

The period during which investors can buy newly issued G-Secs in the WI market is extended, enabling a smoother absorption of large issues without disrupting market stability.

WI market initially restricted to trades on the National Securities Depository (NDS) but later expanded to include non-NDS trades. This broadened participation and increased trading opportunities.

The WI market facilitates price discovery by reducing uncertainty surrounding auctions. This helps ensure fair and efficient pricing for G-Secs.

The RBI initially introduced STRIPS in 2010, but the market response was limited. Revised guidelines in 2018 aimed to make STRIPS more appealing by expanding eligible securities and removing restrictions.

The introduction of SLB in G-Secs in 2023 aimed to increase liquidity, facilitate price discovery, and provide investors with an avenue for utilizing idle securities.