Page 41 - Banking Finance May 2025

ARTICLE

manage the Company's debt more efficiently by providing leading Primary Dealers in the country, the Company was a
both short-term and long-term financial resources on market maker in government securities, corporate bonds
favourable terms. The establishment of such banks laid the and money market instruments. Its other lines of activities
foundation for modern debt management systems. included trading in interest rate swaps and trading in equity
- cash & derivatives segment. The Company enjoyed a
Up to 1867, the public debt borrowing primarily supported successful history of achieving profits during consecutive
military campaigns and territorial expansion, reflecting the years spanning a decade. RBI divested its entire shareholding
needs of the colonial administration. Between 1867-1916, in STCI in two stages.
public debt was increasingly used to fund railway
construction, irrigation canals, and other public works. This Since, the turn of the century, the sovereign bond market
shift marked the beginning of borrowing for capital matured and expanded further. The introduction of the
formation and long-term development. Negotiated Dealing System (NDS) in 2002 facilitated electronic
trading and reporting. The Clearing Corporation of India
During world war I, public debt saw a sharp rise due to Limited (CCIL) was established for settlement and risk
India's contributions to the British war effort. Provincial management. The shift to floating-rate instruments and
borrowing was allowed for the first time under the longer maturity tenures diversified the market and the
Government of India Act, 1919, enabling local governments gradual opening to foreign institutional investors (FIIs)
to float loans. The rise accentuated during the World War increased capital flows and market depth. Innovative
II, with efforts to absorb wartime incomes through instruments such as the Inflation-Indexed Bonds of 2013, was
borrowing to curb inflation. designed to protect investors from inflation risks, as these
bonds linked returns to the Consumer Price Index (CPI).
Post-Independence Developments
Post-Independence and Partition, economic instability Sovereign Gold Bond, another government security issued
seeped in as reconstruction efforts heightened often by the Reserve Bank of India (RBI) on behalf of the
resulting in unmet budgetary targets. The period from 1951 Government of India was introduced in the year 2015. It
to 1985 saw the five-year plan borrowing in a systematic was denominated in grams of gold and was linked to the
manner, wherein efforts were made to align government price of gold in India. In the year 2021, the once highly
security interest rates with market rates following the institutionalized participation was opened for individuals
recommendations of the Chakraborti Committee. through introduction of the RBI Retail Direct Scheme. RBI
Retail Direct Scheme, launched in November 2021, gives
Post liberalization of 1991, comprehensive reforms were access to individual investors to maintain gilt accounts with
undertaken in the government securities market, including RBI and invest in government securities. The Scheme enables
introduction of innovative instruments like zero-coupon investors to buy securities in primary auctions as well as buy/
bonds, floating rate bonds, and capital-indexed bonds. sell securities through the NDS-OM platform.
Enhancement of transparency through auction mechanism
for bond issuance, standardization in valuation of these Recent Innovations
securities and development of secondary market led to In 2023, aligning with India's ambitious Nationally
growth in the bond market. Entities like the Securities Determined Contribution (NDC) and its commitment to
Trading Corporation of India was established to deepen the decoupling economic growth from greenhouse gas
market. In May 1994, now known as STCI Finance Limited emissions, the Government of India issued Sovereign Green
was promoted by RBI with the main objective of fostering Bonds. On January 25, 2023, the Ministry of Finance formally
an active secondary market in Government of India joined the Sovereign Green Bonds Club by pricing an Rs. 80
Securities and Public Sector bonds. billion issuances. The proceeds from these bonds were
allocated to initiatives such as grid-scale solar and wind
RBI owned a majority stake of 50.18% in the paid-up share energy, decentralized solar solutions like solar water pumps
capital of the company. In 1996, the Company was for agriculture, green hydrogen production, metro rail
accredited as the first Primary Dealer in India. As one of the projects, and afforestation efforts.

BANKING FINANCE | MAY | 2025 | 37