RBI’s government securities holdings jump to 14.2%: SBI report
The Reserve Bank of India’s (RBI) share in government securities has witnessed a significant surge, rising to 14.2% in June 2025 from 11.9% last year, according to a report by the State Bank of India (SBI). This increase in the RBI’s holdings of government securities is a notable development, as it reflects the central bank’s efforts to manage the country’s debt and maintain liquidity in the market. In this blog post, we will delve into the details of the SBI report, explore the implications of the RBI’s increased holdings, and examine the potential impact on the bond market.
The SBI report highlights that the RBI’s increased holdings of government securities have been accompanied by a reduction in exposure by banks. This trend is significant, as banks have traditionally been major buyers of government securities. The decrease in bank holdings suggests that they may be adopting a more cautious approach to investing in government debt, possibly due to concerns about the credit quality of these securities or the potential for interest rate fluctuations. On the other hand, insurance companies have maintained a stable level of holdings, indicating that they continue to view government securities as a reliable investment option.
The surge in the RBI’s government securities holdings comes at a time when the central and state governments are expected to undertake heavy borrowings. This increase in borrowing is likely to put upward pressure on bond yields, as the market absorbs the additional supply of government debt. However, the RBI’s interventions in the foreign exchange market have also tightened liquidity, which may help to keep bond yields rangebound. The central bank’s actions in the forex market have reduced the availability of funds in the system, making it more expensive for borrowers to access credit. As a result, the RBI may need to resort to fresh Open Market Operations (OMO) to inject liquidity into the market and maintain stability in the bond market.
The implications of the RBI’s increased holdings of government securities are multifaceted. On the one hand, the central bank’s actions can help to maintain stability in the bond market and prevent a sharp increase in bond yields. This, in turn, can help to keep borrowing costs in check, which is essential for supporting economic growth. On the other hand, the RBI’s increased holdings may also limit the availability of government securities for other market participants, such as banks and insurance companies. This reduction in supply can lead to a decrease in market liquidity, making it more challenging for investors to buy and sell government securities.
Furthermore, the RBI’s interventions in the forex market have also contributed to the tightening of liquidity in the system. The central bank’s efforts to manage the exchange rate and prevent excessive volatility in the currency market have resulted in a reduction in the availability of funds for borrowers. While this may help to prevent a sharp depreciation of the currency, it also increases the cost of borrowing for companies and individuals. As a result, the RBI may need to balance its objectives of maintaining exchange rate stability with the need to support economic growth by keeping borrowing costs in check.
In conclusion, the RBI’s increased holdings of government securities, as highlighted in the SBI report, reflect the central bank’s efforts to manage the country’s debt and maintain liquidity in the market. The reduction in bank holdings and the stability in insurance company holdings are also notable trends that warrant attention. As the central and state governments prepare for heavy borrowings, the RBI’s actions will be crucial in determining the trajectory of bond yields. The central bank’s interventions in the forex market have tightened liquidity, and fresh OMO moves may be necessary to maintain stability in the bond market. As the situation unfolds, market participants will be closely watching the RBI’s actions and their impact on the economy.
About the Author
