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Commercial Banks’ were the biggest holders of G-Secs, accounting for 37.98 per cent of the outstanding.
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The introduction of bond forwards in government securities (G-Secs) with effect from Friday (May 02, 2025) is expected to help long-term investors such as insurers to manage their cash flows and interest rate risk. Further, it will also attract foreign investors due to expected improvement in liquidity in these bonds.
Insurers, especially in the life segment, one of the big investors in the G-Sec market are seen benefiting a great deal as they have loan term liabilities (in the form of insurance policies) and the bond forwards will help them manage payouts to the insured, which are spread over a long period (includes whole life policies).
Bond forward means a rupee interest rate derivative contract in which one counterparty (buyer) agrees to buy a specific G-Sec from another counterparty (seller) on a specified future date and at a price determined at the time of the contract.
As at December-end 2024, insurance companies were the second biggest holders of G-Secs. They held 26.14 per cent of the total outstanding G-Secs aggregating ₹114.23 lakh crore.
Commercial Banks’ were the biggest holders of G-Secs, accounting for 37.98 per cent of the outstanding. RBI and pension funds & provident funds accounts for 10.55 per cent and 9.30 per cent, respectively of the outstanding. Foreign portfolio investors account for 2.81 per cent of the outstanding.
“The RBI’s introduction of bond forwards is a progressive move aimed at deepening the Indian debt market and providing institutional investors—particularly insurance companies — with a structured tool to manage interest rate and duration risk,” said Venkatakrishnan Srinivasan, Founder and Managing Partner of Rockfort Fincap LLP.
He noted that standalone primary dealers and scheduled commercial banks are expected to actively participate as market makers, while other eligible entities like insurers, mutual funds, and large corporates can benefit as participants.
“The provision for physical settlement through a central counterparty like CCIL (Clearing Corporation of India Ltd) adds credibility and reduces settlement risk. While this could enhance demand across maturities, including 10–15-year State development loans (SDLs), actual traction in SDLs will depend on secondary market liquidity, which remains limited.
“Overall, it’s a welcome development, though its success will depend on adoption and trading appetite in the medium term,” opined Venkatakrishnan.
Published on May 1, 2025
This article first appeared on The Hindu Business Line
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