RBI Infuses Rs.23,856 Crore into Banking System via Government Securities Buyback

  • 14 Jun 2025

In News:

In a significant move to bolster liquidity in the financial system, the Reserve Bank of India (RBI) has infused ?23,856 crore into the banking system through a buyback of government securities (G-Secs) on June 5, 2025. This marks the second such bond buyback by the central bank in the current financial year (FY 2025–26).

What is a Bond Buyback?

A bond buyback refers to the RBI repurchasing existing government securities before their maturity. Conducted on behalf of the central government, such operations aim to inject durable liquidity into the banking system, improve the liquidity position of banks, and influence interest rates. It is part of the RBI's broader Open Market Operations (OMOs) toolkit.

Broader Liquidity Context

The RBI’s intervention is part of a broader liquidity management strategy, aimed at ensuring stable and surplus liquidity conditions. The central bank has employed various tools in recent months:

  • Open Market Operations (OMOs)
  • USD/INR Buy/Sell swap auctions
  • Variable Rate Repo (VRR) auctions

These tools were especially crucial after the banking system faced a liquidity deficit in late 2024. Since then, the RBI’s operations have restored liquidity, with the system now in surplus mode—estimated at around ?3 lakh crore.

Significance

  • Monetary Stability: Enhances the transmission of monetary policy by ensuring banks have sufficient funds to lend.
  • Market Functioning: Eases pressure in the bond markets, improves demand for new issuances, and helps manage interest rates.
  • Fiscal Management: Supports the government's borrowing program by managing the maturity profile of debt and yields.

RBI Allows Lending And Borrowing Govt Securities

  • 27 Feb 2024

Why is it in the News?

In a bid to deepen the bond market, the Reserve Bank of India on Wednesday issued guidelines for lending and borrowing in government securities.

What are Government Securities?

  • Government securities, also known as G-Secs, refer to the debt instruments issued by the government to finance its fiscal requirements.
  • These securities are backed by the government’s guarantee of repayment and are considered risk-free investments.
  • They are an integral part of the fixed-income market and are traded on the government securities market.
  • Government securities serve as a means for the government to raise funds from the public to meet its expenditure needs, bridge budget deficits, and fund developmental projects.
  • Investors who purchase these securities lend money to the government in return for regular interest payments and the principal amount at maturity.
  • These securities come in mainly two categories:
    • Short-Term: Often known as “Treasury Bills,” these have initial maturities of less than a year.
    • Long-Term: Typically referred to as Government Bonds or Dated Securities, these have 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 State Development Loans (SDLs).

Treasury Bills (Short-Term G-Secs)

  • Treasury Bills, commonly known as T-Bills, are short-term government securities with a maturity period of less than one year.
  • They are issued at a discount to their face value and are highly liquid instruments.
  • T-Bills serve as a mechanism for the government to efficiently manage its short-term funding requirements.

 Dated Securities (Long-Term G-Secs)

  • Dated Securities are long-term government securities with a fixed maturity period, typically 5 to 40 years.
  • They pay regular interest to investors, known as coupon payments, and return the principal amount at maturity.
  • Dated Securities are vital for financing long-term projects and meeting government borrowing needs.