Question 92 from UPSC CSE 2024 - Economic s

Question

Consider the following statements:
1. In India, Non-Banking Financial Companies can access the Liquidity Adjustment Facility window of the Reserve Bank of India.
2. In India, Foreign Institutional Investors can hold Government Securities (G-Secs).
3. In India, Stock Exchanges can offer separate trading platforms for debt.
Which of the statements given above is/are correct?

IASCODEX · Accepted Answer

Correct Option: D. 2 and 3 only

Strategy: The strategy involves evaluating statements based on institutional eligibility and roles in the financial market:
*   **Statement 1 (LAF Access):** Rejected because only Scheduled Commercial Banks and Primary Dealers directly access the Liquidity Adjustment Facility (LAF), while most Non-Banking Financial Companies (NBFCs) do not.
*   **Statement 2 (FIIs in G-Secs):** Supported by the fact that Foreign Institutional Investors (FIIs) can invest in Government Securities (G-Secs) with SEBI approval.
*   **Statement 3 (Debt Trading Platforms):** Supported by awareness that SEBI allows stock exchanges to offer separate platforms for debt trading.
*   **Conclusion:** Statements 2 and 3 are correct.

Key Info: ## Liquidity Adjustment Facility (LAF)
The LAF is a Reserve Bank of India (RBI) tool that allows Scheduled Commercial Banks (excluding Regional Rural Banks) and Primary Dealers to:
*   Borrow money via repo operations.
*   Lend money to the RBI via reverse repo operations.
*   Utilize government securities as collateral for these transactions.

Most Non-Banking Financial Companies (NBFCs) do not have direct access to the LAF; only some NBFCs classified as Primary Dealers can participate.

## Foreign Institutional Investors (FIIs) in Government Securities (G-Secs)
Foreign Institutional Investors (FIIs) are permitted to invest in Indian Government Securities (G-Secs) under specific SEBI guidelines, within prescribed debt limits. This allows for international portfolio investment in India's sovereign debt market.
*   FIIs must register with SEBI.
*   They must adhere to investment caps and disclosure requirements.
*   Their G-Sec investments contribute to the overall limit on foreign portfolio investment in Indian debt.

## Stock Exchanges and Debt Trading Platforms
Indian Stock Exchanges, regulated by SEBI, are authorized to establish dedicated trading platforms for both corporate and government debt securities. These distinct segments are designed to:
*   Facilitate secondary market trading.
*   Improve price discovery in bonds and various debt instruments.
*   Examples include the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), which operate separate debt market segments to enhance transparency and market participation by banks, institutional, and retail investors.

## Key Market Participants and Regulators
*   **Primary Dealers (PDs)**: These entities are crucial in the government securities market, serving as intermediaries within the LAF and actively supporting market liquidity.
*   **SEBI (Securities and Exchange Board of India)**: This is the principal regulatory body responsible for overseeing debt trading, the creation of trading platforms, and establishing investor participation norms.

IASCODEX · Answer

Option A: 1 and 2 only

IASCODEX · Answer

Option B: 3 only

IASCODEX · Answer

Option C: 1, 2, and 3