Who are the major players in the Government Securities market?

Major players in the Government securities market include commercial banks and primary dealers besides institutional investors like insurance companies. Primary Dealers play an important role as market makers in Government securities market . Other participants include co-operative banks, regional rural banks, mutual funds, provident and pension funds. Foreign Institutional Investors (FIIs) are allowed to participate in the Government securities market within the quantitative limits prescribed from time to time. Corporates also buy/ sell the government securities to manage their overall portfolio risk. INVESTING IN INSURANCE COMPANY. nsurance companies are fast emerging as one of the most prominent players in the government securities market. The share of insurance companies in overall investment in the G-sec market has more than doubled to 23 per cent during 2007-08 from 9 per cent during the previous financial year. Data culled out from the Reserve Bank of Indias (RBI) annual report for 2007-08 revealed that during the year, insurance companies invested Rs 35,880 crore in the G-sec markets, which is over 173.06 per cent higher than the Rs 13,140 crore they invested in 2006-07. Insurers have already emerged as the biggest domestic institutional player in the equity markets. As a result of the higher insurance company activity, during the last financial year, the share of banks fell to 27 per cent from 45 per cent in 2006-07. The total investment by banks in this market dropped nearly 36 per cent to Rs 42,120 crore, from Rs 65,700 crore in the previous year. A part of the reason for the decrease in banks share in the money raised by the government in this market was the fact that the lenders were selling bonds from their SLR portfolio. Banks unwound their positions to meet the demand for loans. In addition, bankers said some of the money was shifted from debt to equity, which was offering better returns at least in the first half of the year. SBI Life Managing Director US Roy said insurance companies also shifted their bias towards debt during the last quarter of 2007-08 due to the stock market volatility. According to a senior insurance company executive, insurers invested more in G-secs in line with the regulators prescription to elongate the maturity profile of the securities.

In recent years, as the demand for long-term paper increased, the weighted average maturity of outstanding stock has gone up from 6.5 years in 1997-98 to 10.4 years in 2007-08. The elongation of maturity profile has been made possible largely on account of (an) increase in market appetite from non-bank market participants, particularly insurance companies and provident funds, and improved market maturity, RBI said recently. Last year, the primary dealers, however, continued to be a major player in the G-sec market with a share of 48 per cent and investment of Rs 74,880 crore, compared to a 45 per cent share with Rs 65,700 crore investments in the previous year.25% SLR bonds prescription hits G-sec market growth The Reserve Bank of India today said the prescription that banks must park at least 25 per cent of deposits in the Statutory Liquidity Ratio (SLR) eligible bonds is hampering the development of the government securities (G-sec) market. There is a dilemma whether to assume there is a genuine G-sec market, and hence rapidly reduce SLR to reinforce more marketisation or ensure a viable market borrowing and reduce SLR in tandem, RBI said in its annual report. There is a need to assess the sensitivity of the fiscal to interest rate burden if SLR is reduced rapidly. The importance of giving SLR status to bonds issued by the government has also come to the fore recently when oil bonds issued by the government turned out to be illiquid despite carrying a yield of 25 basis points higher than the SLR-eligible bonds of similar maturity.