CSGL accounts are a demat form of holding government securities with the RBI, just as an investor can hold shares in demat form with a depository participant.
Government Securities are largely issued as Stocks and held in demat form to the credit of the holder in the Subsidiary General Ledger account (SGL) maintained in the books of RBI. When these securities are held by the investor through an agent like PD or Bank the agent holds another SGL account with RBI for keeping the Government Securities owned by its customers. This second account is called the Constituent Subsidiary General Ledger account (CSGL) and is a segregated SGL account for keeping securities on behalf of customers by banks and Primary Dealers.
Features of CSGL Accounts
Like a bank account gets debited or credited whenever the customer withdraws or deposits money, CSGL account also gets debited or credited on the sale or purchase of the securities.
The account holder receives a statement at periodic intervals showing the balance of securities in his account.
All the securities are maintained in demat mode, which can be converted into physical mode whenever required by the Gilt Account Holder.
Advantages of opening CSGL Accounts
- Treasury bills and Government Securities are maintained in a demat form.
- Expeditious transactions can be undertaken.
- The government securities are transferred to Gilt Account on the settlement day.
- Reduces counterparty risk due to speedy settlement.
- Collection and payment of maturity proceeds and interest is faster as the interest and maturity proceeds would be
collected by the Primary Dealer, and paid to the Gilt Account Holder.
- Reduces administrative burdens for the Gilt Account Holder.
Retailing the G-Secs means taking the G-Secs market to retail investors. Today, the G-Secs market in the country is predominantly inhabited by wholesale players like Banks, Financial Institutions, Primary Dealers, FIIs, Mutual Funds, Insurance Companies, Brokers, Pension Funds, etc. For vibrant G-Secs market, it is necessary to attract retail investors so that they can participate in the market that will bring them a reasonable return with no credit risk. Recently, with the introduction of Government Securities Act, 2006 and the Government Securities Regulations, 2007 (See Postings on the homepage of our website), Government Securities have become more investor friendly while giving attractive returns for a longer duration to investors.
Government Securities can also be held in demat form. CSGL facility was started with this objective so that any person or a body corporate, etc. could hold their portfolio of Government Securities with RBI through an intermediary like Bank or a Primary Dealer. Now they can also be held through a D.P.
To safeguard the interest of small investors who may not have the sophistication in bidding in auction and to save them from ‘winner’s curse’, RBI has also introduced a non-competitive bidding facility for retail investors in G-Secs. Through this non-competitive bids are accepted up to 5 percent of the notified amount in the specified auctions of dated securities. Retail investors when they bid through this system get assured allotment (may be partial) at the weighted average price of the winning bids.
The system of Primary Dealers (PDs) in the Government Securities Market was introduced by Reserve Bank of India in 1995 to strengthen the market infrastructure of Government Securities and put in place an improved, efficient secondary market trading system. This was to encourage holding of Government Securities on large scale and make the market more vibrant and liquid. In 2006-07, RBI gave Banks the option to undertake Primary Dealership business departmentally.
DFHI was set up by RBI along with public sector banks and financial institutions in March 1988 to activate the Money Market. It got the status of Primary Dealer in February 1996. Over a period of time, RBI divested its stake and DFHI became a subsidiary of State Bank of India (SBI). SBI had also set up a subsidiary in 1996 for doing PD business namely SBI Gilts Limited. Both these companies were merged in 2004 to become the largest Primary Dealer in the country in terms of net worth (Rs. 1,059 crores as on March 31, 2008)
Primary Dealers can also be referred to as Merchant Bankers to Government of India as only they are allowed to underwrite primary issues of government securities other than RBI who have since shed this role.
Stand-alone PDs are allowed the following activities as core activities:
- Dealing and underwriting in Government securities.
- Dealing in Interest Rate Derivatives.
- Providing broking services in Government securities.
- Dealing and underwriting in Corporate / PSU / FI bonds/ debentures.
- Lending in Call/ Notice/ Term/ Repo/ CBLO market.
- Investment in Commercial Papers.
- Investment in Certificates of Deposit.
- Investment in Security Receipts issued by Securitization Companies/ Reconstruction Companies, Asset Backed Securities (ABS), Mortgage Backed Securities (MBS).
- Investment in debt mutual funds where entire corpus is invested in debt securities.
PDs are permitted to undertake the following activities under non-core activities:
a) Activities, which are expected to consume capital, such as:
- Investment / trading in equity and equity derivatives market
- Investment in units of equity oriented mutual funds
- Underwriting public issues of equity
b) Services which do not consume capital or require insignificant capital outlay, such as:
- Professional Clearing Services
- Portfolio Management Services
- Issue Management Services
- Merger & Acquisition Advisory Services
- Private Equity Management Services
- Project Appraisal Services
- Loan Syndication Services
- Debt restructuring services
- Consultancy Services
- Distribution of mutual fund units
- Distribution of insurance products
PDs are not allowed to undertake broking in equity, trading / broking in commodities, gold and foreign exchange. Their total investment pattern should include minimum 50% in Government Securities.
PDs are permitted to borrow, lend and trade in the money market including call money market, CBLO of CCIL and participate in Repos. They are eligible for memberships of electronic dealing, trading and settlement systems (NDS platforms / INFINET / RTGS / CCIL). Stand-alone PDs can also open CSGL accounts to enable customers to hold government securities in demat form.
The Government of India Securities (G-Secs) are sovereign securities which are issued by the Reserve Bank of India on behalf of Government of India, in lieu of the Central Government’s market borrowing programme.
Government Securities includes all of these:
- Central Government Securities.
- State Government Securities
- Treasury bills
The Central Government borrows funds to finance its ‘fiscal deficit’. The market borrowing of the Central Government is raised through the issue of dated securities and 364 days treasury bills either by auction or by floatation of loans.
In addition to the above, treasury bills of 91 days are issued for managing the temporary cash mismatches of the Government. These do not form part of the borrowing programme of the Central Government.
The Current Rates at which G-Secs are being traded can be checked on RBI website as Gsecs are traded through Negotitated Dealing System (NDS) –