RBI's government securities holdings jump to 14.2%, says SBI report

An SBI report reveals RBI's share in government securities rose to 14.2% as banks' share fell. The central bank's forex interventions to defend the rupee drained liquidity, which it offset via OMOs, helping to keep bond yields rangebound.

RBI's Growing Stake in Government Securities

The Reserve Bank of India's (RBI) share in the outstanding government securities (G-secs) has seen a noticeable rise over the past year, according to a recent report by the State Bank of India (SBI). The report mentioned that the RBI's holding increased to 14.2 per cent in June 2025, compared with 11.9 per cent in June 2024, and 10.6 per cent in December 2025. It stated, "RBIs share in outstanding Government securities has increased to 14.2 per cent in Jun-25 from 11.9 per cent in Jun-24, and 10.6 per cent in Dec'25."

In contrast, the share held by banks has declined, while the share of insurance companies has remained broadly unchanged over the same period. The report noted that the Central government is expected to borrow around Rs 1.00 lakh crore every month until February 2026, with only a small amount scheduled for March. At the same time, relatively large State Development Loan (SDL) issuances are likely to compete with short-term government borrowings. Given this supply scenario, the report believed that bond yields could remain rangebound and move sideways in the coming days.

Market Dynamics and Bond Yield Outlook

While banks and mutual funds have been net sellers of G-secs in recent months, the "Others" category has emerged as the major buyer, helping absorb supply in the market.

RBI's Forex Market Intervention

The report also highlighted the RBI's activity in the foreign exchange market. The central bank intervened against its comfortable forex reserves to curb excessive speculation and defend the rupee. Between June and August 2025, the net sale of foreign currency amounted to around USD 14 billion, which translated into a Rs 1.2 lakh crore withdrawal of permanent liquidity from the banking system.

India's foreign exchange reserves, which stood at USD 703 billion in June 2025, declined to USD 690 billion by the end of October. Excluding gold and Special Drawing Rights (SDRs), reserves fell by USD 30 billion, from USD 599 billion to USD 569 billion during the same period. With the rupee showing a depreciating trend, the report suggested that RBI's intervention likely continued beyond August and may have surpassed these figures by now.

Managing Liquidity and Strategy Shift

It also added that the recent round of RBI's Open Market Operations (OMOs) in the secondary market could be a tactical move to inject permanent liquidity to offset the liquidity drained due to forex interventions. The report also noted that the RBI has shifted part of its intervention strategy towards the Non-Deliverable Forward (NDF) markets instead of spot market operations, as this approach helps manage currency volatility without impacting banking system liquidity. (ANI)

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