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 increase, rising to 14.2% in June 2025 from 11.9% last year, according to a recent report by the State Bank of India (SBI). This notable jump in the RBI’s holdings has been accompanied by a reduction in exposure by banks, while insurance companies have maintained a stable holding in government securities. As the central and state governments prepare for heavy borrowings ahead, the bond yields are expected to remain rangebound. Furthermore, the RBI’s interventions in the foreign exchange market have led to a tightening of liquidity, prompting the central bank to undertake fresh Open Market Operations (OMO) to inject liquidity into the system.
The increase in the RBI’s government securities holdings can be attributed to the central bank’s efforts to manage the yield curve and maintain liquidity in the market. The RBI has been actively participating in the government securities market, buying and selling securities to influence the yield curve and regulate the supply of liquidity. The rise in the RBI’s holdings is a reflection of its commitment to maintaining financial stability and supporting the government’s borrowing program.
The reduction in banks’ exposure to government securities, on the other hand, can be attributed to the increasing competition for deposits and the need to maintain liquidity. Banks have been facing intense competition for deposits, which has led to a rise in deposit rates. As a result, banks have been reducing their investments in government securities to maintain liquidity and meet the increasing demand for credit. This reduction in exposure has been offset by the increase in the RBI’s holdings, ensuring that the overall demand for government securities remains stable.
The stability in insurance companies’ holdings of government securities is a positive sign, as it reflects the sector’s commitment to investing in safe and secure assets. Insurance companies have been maintaining a significant portion of their investments in government securities, which provides them with a stable source of income and helps to match their long-term liabilities. The stability in insurance holdings has helped to maintain the overall demand for government securities, despite the reduction in banks’ exposure.
The upcoming heavy borrowings by the central and state governments are expected to put pressure on the bond market, leading to rangebound bond yields. The government’s borrowing program is expected to be significant, with the central government planning to borrow over ₹12 lakh crore in the current financial year. The state governments are also expected to borrow heavily, which will put pressure on the bond market and lead to rangebound yields. The RBI’s interventions in the bond market, including its OMO operations, will play a crucial role in managing the yield curve and maintaining liquidity.
The RBI’s interventions in the foreign exchange market have also had a significant impact on the liquidity situation. The central bank has been intervening in the foreign exchange market to manage the exchange rate and maintain stability. However, these interventions have led to a tightening of liquidity, prompting the RBI to undertake fresh OMO operations to inject liquidity into the system. The OMO operations have helped to maintain liquidity and stabilize the bond market, ensuring that the financial system remains stable and functional.
In conclusion, the RBI’s increase in government securities holdings to 14.2% is a significant development, reflecting the central bank’s commitment to maintaining financial stability and supporting the government’s borrowing program. The reduction in banks’ exposure and the stability in insurance holdings have been offset by the increase in the RBI’s holdings, ensuring that the overall demand for government securities remains stable. The upcoming heavy borrowings by the central and state governments are expected to put pressure on the bond market, leading to rangebound bond yields. The RBI’s interventions in the bond market and the foreign exchange market will play a crucial role in managing the yield curve and maintaining liquidity.
As the financial system continues to evolve, it is essential to monitor the developments in the government securities market and the RBI’s interventions. The RBI’s actions will have a significant impact on the bond market, and its ability to manage the yield curve and maintain liquidity will be crucial in ensuring the stability of the financial system. As we move forward, it will be interesting to see how the RBI navigates the challenges posed by the heavy borrowings and the tightening of liquidity, and how its actions impact the bond market and the overall economy.
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