New G-Sec Act to make RBI sole regulator of debt

the government has proposed to replace the archaic public debt act, 1944, by the government securities act to streamline the entire mechanism of handling public debt and rejig the management of gilts. the new act would be introduced in the winter session of parliament. the proposed government securities act would permit gilts to be held in a dematerialised form, make rbi the sole regulator for debt, arm it with the powers to call for books of players and take penal action against violators, provide for nomination facility for gilt holders in the event of the death and permit coupon stripping. coupon stripping is aimed at enabling primary dealers to tailor g-secs to meet the investment and risk profile of retail and institutional investors and would be introduced through section 11 and sub-sections (k), (l) and (m) of section 32 of the proposed act. all states, except j&k and kerala, have already made the requisite changes in their own legislation to make the repeal of the public debt act possible. j&k has already informed the government that it would adopt the changes after the act has been passed by the parliament. kerala has, however, told the centre that the state assembly would soon pass the necessary changes. on the regulatory side, the new act seeks to empower rbi to issue regulatory guidelines and directors and conduct inspection of books of accounts of its agents. it also proposes to make changes in definitions of government security stock, provisions relating to subsidiary general ledger (sgl) and constituent sgl accounts. rbi has been extending liquidity support to primary dealers against gilt collaterals. new clauses related to hypothecation and pledges have been included in the proposed act. it also places the sgl form at par with cheques. misuse of sgl forms and its bouncing will be treated as a penal offence. any violation will allow the bank to debar sgl facility. the existing public debt act has to be replaced as it deals with very limited aspects of government debt and does not cover more recent government liabilities like national savings scheme and indira/kisan vikas patras. it is also so dated that it does not define the term stock to include certificates and sgl accounts. it also does not recognise holding stock in the demat form. the new act seeks to make nomination facility applicable to individual/joint holders of stock in all government loans. at present, the rbi regulates some of these areas though rules and guidelines, but moving these provisions into the main act would further strengthen rbi's regulatory role. the proposed act will be kept outside the ambit of the depositories act which provides for legal framework for holding in demat form depositories, equities, bonds, debentures and other market instruments issued by corporates. the delinking is to avoid any confusion in the minds of investors in g-secs. the new act also allows for issue of government securities in the form of promissory notes to registered trusts and provident funds. the earlier law posed difficulties to trusts and such institutions which generally acquired these notes from brokers.

New G-Sec Act to make RBI sole regulator of debt

THE government has proposed to replace the archaic Public Debt Act, 1944, by the Government Securities Act to streamline the entire mechanism of handling public debt and rejig the management of gilts.

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