G-sec Acquisition Programme 2.0: All you need to know

Of late, RBI has announced its plans to buy five government securities aggregating to Rs. 25,000 crores via a multi-security auction using the multiple-price method on 26 August 2021 under the G-sec Acquisition Programme (G-SAP 2.0).

The purchase will be of securities that will mature between January 2026 and June 2035. The coupon rate varies from 6.64% to 8.28%. 

Source: RBI

The RBI will make a decision on the quantum of purchase of individual securities and accept bids for fewer than the aggregate amount. It will also purchase marginally higher or lower than the aggregate amount due to rounding-off or accept or reject any or all the bids either wholly or partially without assigning any reasons.

The result of the auctions are expected to be announced on the same day and successful participants should ensure availability of securities in their SGL account by noon on 27 August 2021, an RBI statement said. 

Earlier, the apex bank bought government bonds through the open market worth Rs. 20,000 crore. 

Government Securities Acquisition Programme (G-SAP)

It is an unconditional and structured OMO of a larger scale and size with a distinct character. The term unconditional refers to the RBI's commitment to buy Government Securities irrespective of the market sentiment. 

Aim of G-SAP

It aims to achieve a stable and orderly evolution of the yield curve along with the management of liquidity in the economy. 

Significance of G-SAP

By purchasing the government securities, the RBI infuses money into the economy, which in turn, keeps the yield down and lower the borrowing cost of the Government.

What are the issues associated with the G-SAP?

Experts are of the opinion that with the announcement of G-SAP, the rupee has already depreciated. There is a trade-off between a tumbling rupee and lower borrowing costs. Additionally, too much liquidity will drive up inflation. 

What are Government Securities?

Government Securities are debt instruments that are issued by the government to borrow money. They carry no risk of default and are risk-free gilt-edged instruments. They are, however, subject to fluctuations in interest rates.

Government Securities consists of two categories:

1- Treasury Bills (T-Bills): These are short term instruments issued in three tenors in 91 days, 182 days, and 364 days. These are zero-coupon securities that pay no interest. 

2- Dated Securities: These are long term instruments with an original maturity of one year or more. 

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 State Development Loans (SDLs).

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