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GS Paper: Mobilization Of Resources

  • What is Basel III Endgame?

    Why in the news?

    The US Federal Reserve recently announced stricter bank capital requirements known as the “Basel III endgame” proposal.

    What is Bank Capital?

    • Bank capital is a measure of bank shareholders’ investment in the business.
    • In contrast to deposits or money a bank has borrowed, capital does not have to be paid back.
    • In other words, it is a cushion or buffer that protects a bank from insolvency—and, thus, reduces the risk that a bank failure triggers system-wide financial instability.
    • A bank that has sufficient capital can cover customers’ deposits even if the loans it has made aren’t repaid or if its investments drop in value.

    What are Basel Norms?

    • Basel, Switzerland, hosts the Bureau of International Settlement (BIS), fostering collaboration among central banks to establish global banking standards.
    • The Basel Committee on Banking Supervision (BCBS), established in 1974 formulates broad supervisory guidelines known as the Basel framework.
    • Its purpose is to ensure banks maintain adequate capital to meet obligations and absorb losses.
    • India has adopted Basel standards to align its banking practices with global norms.
    Description
    Basel I
    • Introduced in 1988.
    • Known as the Basel Capital Accord.
    • Focused on credit risk.
    • Set a minimum capital requirement of 8% of risk-weighted assets (RWA).
    • Assets were assigned risk weights based on their risk profile.
    • Adopted by India in 1999.
    Basel II
    • Published in June 2004.
    • Aimed to refine and reform Basel I.
    • Introduced three pillars:
    1. Capital Adequacy Requirements
    2. Supervisory Review
    3. Market Discipline
    • Increased focus on risk management and disclosure.
    • Yet to be fully implemented in India and abroad.
    Basel III
    • Released in 2010 after the 2008 financial crisis.
    • Aimed to strengthen the banking system.
    • Made banking activities more capital-intensive.
    • Focus on four key parameters:
    1. Capital
    2. Leverage
    3. Funding
    4. Liquidity
    • Designed to promote a more resilient banking system.
    *Basel IV

     
    • In 2017, the Basel Committee agreed on changes to the global capital requirements as part of finalising Basel III.
    • The changes are so comprehensive that they are increasingly seen as an entirely new framework, commonly referred to as “Basel IV”.
    • Set to take effect under transition rules from 2025.*

     

    Proposed Changes under Basel III Endgame

    • Expansion of Scope: The proposal aims to extend the strictest risk-based capital approach to more banks, lowering the asset threshold from $700 billion to $100 billion. This would encompass around 37 large banks in the U.S.
    • Standardized Measure for Capital Requirements: Regulators propose curtailing banks’ use of internal models to calculate capital requirements for loans, advocating for a standardized measure for all banks to ensure uniform risk assessment.
    • Increased Capital for Trading and Operational Risks: The proposal mandates higher capital reserves for risks linked to trading activities and operational challenges, requiring banks to utilize standard models for risk assessment instead of internal ones.
    • Changes to Capital Calculations for Portfolios: Banks with assets exceeding $100 billion must reflect gains and losses in portfolios categorized as “available for sale” in their capital calculations, aiming for a more precise depiction of a bank’s risk exposure.

    Challenges created by the new Norms

    • Operational Risks: A substantial portion of the proposed capital increment targets banks’ operational risks, encompassing potential losses arising from internal processes, people, systems, or external events.
    • Non-Traditional Banking Activities: Entities engaged in trading, market-making, wealth management, and investment banking, will face more pronounced capital requirements due to altered risk assessment and operational risk calculations.
    • Industry-specific Concerns: Additionally, specific industries, like renewable energy, anticipate repercussions, fearing that increased capital requirements could undermine the effectiveness of tax incentives for projects targeting climate change.

    Arguments in Favor of Increasing Capital

    • Financial Stability: Proponents argue that heightened capital requirements are imperative for safeguarding financial stability, averting bank failures, and minimizing the need for government bailouts.
    • Prudent Banking Practices: They contend that current standards inadequately address bank risks and that increased capital incentivizes prudent banking practices.
    • Resilient Banking System: Economists suggests that the social costs of higher capital requirements are minimal compared to the benefits of a more resilient financial system.

    PYQ:

    2015:

    ‘Basel III Accord’ or simply ‘Basel III’, often seen in the news, seeks to:

    (a) Develop national strategies for the conservation and sustainable use of biological diversity

    (b) Improve banking sector’s ability to deal with financial and economic stress and improve risk management

    (c) Reduce the greenhouse gas emissions but places a heavier burden on developed countries

    (d) Transfer technology from developed countries to poor countries to enable them to replace the use of chlorofluorocarbons in refrigeration with harmless chemicals

     

    Practice MCQ:

    What is the primary objective of “Basel III Endgame” in the banking sector?

    (a) To encourage speculative investments by banks to boost short-term profits.

    (b) To ensure the stability of the global financial system by strengthening the regulation, supervision, and risk management practices of banks.

    (c) To encourage banks to invest more in less-risky assets to stimulate economic growth.

    (d) To limit the role of central banks in regulating commercial banks and promote market-driven banking practices.

  • Surge in Farm Loan Disbursals  

    Introduction

    • In the first nine months of the current fiscal year, farm loan disbursals have exceeded 90 percent of the Budget estimate, prompting expectations of a significant hike in the Interim Budget for the next fiscal year (2024-25).
    • Finance Minister had set a target of ₹20 lakh crore for agriculture credit during the previous fiscal year (2023-24).

    Budget Promises and Performance

    • Credit Target Increase: Finance Minister Sitharaman had announced an agriculture credit target of ₹20 lakh crore for FY 2023-24. The current disbursement data indicates that this target is likely to be exceeded.
    • Sectoral Focus: The Ministry reported that credit disbursed to the Animal Husbandry and Fisheries sector in FY 2023-24 reached ₹1,91,412 crore, constituting 65 percent of the ₹2.93 lakh crore target.
    • Working Capital and Term Loans: Disbursements included over ₹77,000 crore as working capital and over ₹1.13 lakh crore as term loans.

    Kisan Credit Card (KCC) Scheme Impact

    • Significant Growth: Agricultural credit has witnessed substantial growth from ₹7.3 lakh crore in FY 2013-14 to ₹21.55 lakh crore in FY 2022-23, driven by the success of the KCC scheme.
    • Operative KCC Accounts: The KCC scheme, facilitating timely and hassle-free credit, boasts over 7.36 crore operative accounts as of the end of 2023.
    • Interest Subvention: Concessional interest rates, with a 7 percent lending rate and a 1.5 percent per annum interest subvention, were offered for short-term crop and allied activity loans up to ₹3 lakh through KCC.

    About Kisan Credit Card (KCC) Scheme

    Details
    Objective To provide timely and flexible credit support to farmers for various agricultural and related needs.
    Launch Introduced in 1998 to issue KCC to farmers, facilitating the purchase of agricultural inputs and cash withdrawals for production needs.
    Credit Support
    • Short-term credit for crop cultivation.
    • Post-harvest expenses and produce marketing loans.
    • Household consumption needs.
    • Working capital for farm assets maintenance and allied activities.
    • Investment credit for agriculture and allied activities.
    Implementing Agencies Commercial Banks, Regional Rural Banks (RRBs), Small Finance Banks, and Cooperatives.
    Eligible Farmers
    • Individual and joint borrowers who are owner cultivators.
    • Tenant farmers, oral lessees, and sharecroppers.
    • Self Help Groups (SHGs) or Joint Liability Groups (JLGs) of farmers, including tenant farmers and sharecroppers.
    Maximum Permissible Limit (MPL) The short-term loan limit for the 5th year, plus the estimated long-term loan requirement, determines the KCC limit.

    Regulatory Framework and Initiatives

    • RBI Mandate: RBI mandates a priority sector lending target for banks, with a specific allocation of 18 percent for agriculture and a 10 percent sub-target for Small and Marginal Farmers (SMFs) for FY 2023-24.
    • Prompt Repayment Incentive (PRI): An additional 3 percent PRI is provided for prompt and timely repayment, effectively reducing the interest rate to 4 percent per annum.
    • Collateral-Free Agriculture Loans: RBI is set to raise the limit for collateral-free agriculture loans to ₹1.6 lakh from ₹1 lakh, aiming to enhance the coverage of small and marginal farmers.
    • Streamlined Lending Practices: Banks have streamlined lending by eliminating ‘no dues’ certificates for small loans up to ₹50,000 and accepting alternative documentation or affidavits for loans to specific categories of farmers.

    Financial Inclusion and NABARD Initiatives

    • Joint Liability Groups (JLGs): NABARD’s creation of ‘Joint Liability Groups’ has facilitated lending without collateral to tenant/landless farmers and non-farm workers, fostering trust between banks and JLG members.
    • JLGs Performance: By March 31, 2023, a total of 257.9 lakh JLGs had been formed and linked to credit, contributing to the broader financial inclusion agenda.

    Conclusion

    • The surge in farm loan disbursals indicates the success of various government initiatives, particularly the KCC scheme, in promoting financial inclusion and supporting the agricultural sector.
    • The likely increase in the agriculture credit target in the upcoming Interim Budget underscores the continued commitment to rural financing and development.

  • RBI Surplus Transfer to Govt.

    surplus rbi

    Central Idea

    • The Central Board of Directors of the RBI approved the transfer of ₹87,416 crore as surplus to the Union government for the accounting year 2022-23.
    • This amount is almost three times the ₹30,307 crore transferred in the previous fiscal year.

    Reserve funds of RBI

    The RBI has two types of reserves: Currency & Gold Revaluation Account (CGRA) and Contingency Fund (CF).

    1. CGRA: It represents the value of gold and foreign currency held by the RBI on behalf of India and fluctuates based on market movements.
    2. Contingency Fund: It is a provision to meet unexpected contingencies arising from the RBI’s monetary policy and exchange rate operations.

    Calculation of Surplus

    • RBI’s surplus is the amount transferred to the government after meeting its needs and provisions.
    • The surplus is determined by deducting expenses, including provisions made to the CF, from the RBI’s income, mainly generated through interest on securities.

    How does RBI earn its INCOME?

    The RBI earns profits through various functions and operations it carries out, including:

    1. Managing the borrowings of the Government of India and State governments.
    2. Supervising and regulating banks and non-banking finance companies.
    3. Managing the currency and payment systems.

    RBI generates income through the following sources:

    1. Returns on its foreign currency assets, such as bonds and treasury bills of other central banks or top-rated securities.
    2. Interest earned on holdings of local rupee-denominated government bonds or securities.
    3. Interest earned from lending to banks for short tenures, such as overnight loans.
    4. Management commission received for handling government and state government borrowings.

    Expenditure by RBI

    The RBI’s expenditures include-

    1. Costs related to printing currency notes
    2. Staff salaries
    3. Commissions paid to banks for government transactions and
    4. Payments to primary dealers for underwriting borrowings

    How the transfer of surplus takes place?

    • The RBI, as a central bank, is not a commercial organization owned or controlled by the government.
    • The RBI was initially a private shareholders’ bank but was nationalized by the government in January 1949.
    • According to Section 47 (Allocation of Surplus Profits) of the Reserve Bank of India Act, 1934, the RBI transfers the excess of income over expenditure to the government.
    • This provision mandates the transfer of profits to the Central Government after accounting for necessary provisions and obligations.

    Does the RBI pay tax on these earnings or profits?

    • No, the RBI is exempted from paying income tax or any other tax as per Section 48 (Exemption of Bank from income-tax and super-tax) of the RBI Act, 1934.
    • This exemption ensures that the RBI is not liable to pay income tax or super-tax on its income, profits, or gains.

    Policy inputs

    (1) Y H Malegam Committee

    • It reviewed the adequacy of reserves and surplus distribution policy in 2013, recommended a higher transfer to the government.
    • Prior to this recommendation, the RBI transferred a portion of the surplus to the Contingency Fund and the Asset Development Fund.
    • Following the Malegam committee’s recommendation, the percentage of surplus transferred to the government significantly increased from 53.40% in 2012-13 to 99.99% in 2013-14.

    (2) Bimal Jalan Committee

    • The RBI in November 2018 had constituted a 6-member committee, chaired by former governor Dr Bimal Jalan.
    • It was tasked to review the current economic capital framework (ECF), after the Ministry of Finance asked the central bank to follow global practices.

    Key recommendations

    1. Differentiate between realised equity and revaluation balances for RBI’s economic capital.
    2. Adopt Expected Shortfall (ES) for measuring market risk with a target of ES 99.5% confidence level.
    3. Maintain Contingent Risk Buffer (CRB) between 6.5% and 5.5% of RBI’s balance sheet.
    4. Implement surplus distribution policy based on realised equity.
    5. Review RBI’s Economic Capital Framework every five years.

     

     

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  • SEBI approval to launch Social Stock Exchange

    The National Stock Exchange (NSE) has received final approval from the Securities and Exchange Board of India (SEBI) to set up a Social Stock Exchange (SSE) as a separate segment of the NSE.

    What is a Social Stock Exchange?

    • Social Stock Exchange (SSE) is a platform that connects social enterprises with investors who are looking for social impact along with financial returns.
    • Social enterprises are organizations that prioritize social impact over profits.
    • SSE aims to provide these organizations with access to capital markets and raise awareness about social investment opportunities.

    Who can get listed for SSEs?

    • Any social enterprise, Non-Profit Organisation (NOPs) or For-Profit Social Enterprises (FPEs), that establishes its primacy of social intent can get registered or listed on the Social Stock Exchange segment.
    • Eligible NPOs can begin by registering on the SSE segment.
    • After onboarding, NPOs can initiate the fund mobilization process by issuing instruments such as Zero Coupon Zero Principal (ZCZP) via a public issue or private placement.
    • Currently, the regulations have prescribed a minimum issue size of Rs 1 crore and a minimum application size for the subscription of Rs 2 lakhs for ZCZP issuance.

    How will SSE work?

    • The SSE will be a separate segment on the NSE, where social enterprises can list their securities.
    • These securities will be available for trading to investors who are interested in social impact investing.
    • The SSE will also provide a range of services such as capacity building, impact measurement, and reporting to help social enterprises improve their operations and measure their social impact.

    Benefits of SSE

    • For social enterprises, SSE will provide access to capital markets and help them raise funds for their social projects.
    • For investors, SSE will provide a platform to invest in social enterprises and contribute to social impact.
    • SSE will also create a transparent marketplace where investors can assess the social impact of their investments.

     

     

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  • Reserve Bank Integrated Ombudsman Scheme (RBIOS)

    Issues related to ATM/debit cards and mobile/electronic banking were the top grounds of complaints received at the Office of Banking Ombudsman (OBO).

    Why in news?

    • Of these, 3,04,496 complaints were handled by the 22 Offices of RBI Ombudsman (ORBIOs), including the complaints received under the three erstwhile Ombudsman Schemes till November 11, 2021.
    • Complaints related to ATM/ debit cards were the highest at 14.6% of the total, followed by mobile/ electronic banking at 13.6%.
    • About 90% of the total complaints were received through digital modes, including on the online Complaint Management System (CMS) portal.
    • Majority 66.1% of the maintainable complaints were resolved through mutual settlement/ conciliation/ mediation.

    Banking Ombudsman Scheme

    • The Banking Ombudsman Scheme is an expeditious and inexpensive forum for bank customers for resolution of complaints relating to certain services rendered by banks.
    • It is introduced under Section 35 A of the Banking Regulation Act, 1949 by RBI with effect from 1995.
    • Presently the Banking Ombudsman Scheme 2006 (As amended upto July 1, 2017) is in operation.
    • All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-operative Banks are covered under the Scheme.
    • As per the present regulations, the ombudsman redressal is allowed for complaints where the compensation amount for any loss suffered by the complainant is limited to Rs 20 lakh.
    • Under the RBI-OS, 2021, following the ‘One Nation, One Ombudsman’ principle, the territorial jurisdictions have been abrogated, and complaints are assigned to all the ombudsmen by the CMS.

    What about other sectors?

    • The Reserve Bank Integrated Ombudsman Scheme (RBIOS) amalgamates three ombudsman scheme of RBI – banking ombudsman scheme of 2006, ombudsman scheme for NBFCs of 2018 and ombudsman scheme of digital transactions of 2019.
    • The unified ombudsman scheme will provide redress of customer complaints involving deficiency in services if the grievance is not resolved to the satisfaction of the customers or not replied within a period of 30 days.
    • The new scheme also includes non-scheduled primary co-operative banks with a deposit size of Rs 50 crore and above.
    • The integrated scheme makes it a “One Nation One Ombudsman’ approach and jurisdiction neutral.

     

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  • Green finance for green future

    green finance Context

    • Inclusion of climate change and green finance in policy is crucial for a strong economy.

    What is green finance?

    • Green finance is a phenomenon that combines the world of finance and business with environment friendly behaviour. It may be led by financial incentives, a desire to preserve the planet, or a combination of both.
    • In addition to demonstrating proactive, environment friendly behaviour, such as promoting of any business or activity that could be damaging to the environment now or for future generations.

    Green finance instruments       

    • Dedicated fund: A “green super fund” could be established to jumpstart green investments by pooling together international and domestic capital.
    • Sovereign green bond (SGB): The sovereign green bond is a novel idea. It will be a part of the government’s borrowing programme. The gross borrowing programme of the government is pegged at Rs 14.95 lakh crore. The SGB (sovereign green bond) raised will be part of the aggregate borrowing programme and has to be used for projects which are ESG (environment, social and governance) compliant.

    green financeNetwork for Greening the Financial System

    • The Network for Greening the Financial System is a network of 114 central banks and financial supervisors that aims to accelerate the scaling up of green finance and develop recommendations for central banks’ role for climate change.
    • The NGFS was created in 2017 and its secretariat is hosted by the Banque de France.

    Purpose

    • The Network’s purpose is to help strengthening the global response required to meet the goals of the Paris agreement and to enhance the role of the financial system to manage risks and to mobilize capital for green and low carbon investments in the broader context of environmentally sustainable development.

    green financeSignificance

    • Green goals: Reaching net-zero emissions and other climate-related and environmental goals will require significant investments to enable decarbonisation and innovation across all sectors of the economy. Greening the financial system is key to making these investments happen.
    • SDG goals: Green finance initiatives also aim to achieve the 2030 Sustainable Development Goals (SDGs), shifting the focus from creating value for shareholders (economic) to creating value for stakeholders (economic, environmental, and social).
    • Green future: And as we begin to recover from the pandemic, green finance presents a huge opportunity to build back with a greener future, creating new businesses and jobs.
    • Robust growth: Supports strong and green growth in all sectors of economy .

    The issues in mobilization and effective use of green finance are

    • Low incentives: The return on green finance is long term, low in monetary value & many times intangible, so that the ability of the financial system to mobilize private green finance, especially in developed countries is difficult.
    • Distribution challenge: Developing countries like India have challenges of development & poverty alleviation, so allocation of resources towards meeting fundamental needs & promoting the green projects which require heavy investment is a challenge.
    • Skewed investment: In many countries, green finance & much of the green projects are limited to the investment in renewable energy: India whose 60% of installed capacity is coal based, greening of coal technology is required which is mostly limited to private players in developed countries. It is subjected to IPR & makes them cost prohibitory.
    • High risk: Green bonds are perceived as new and attach higher risk and their tenure is also shorter. There is a need to reduce risks to makes them investment grade.

    Conclusion

    • Our future depends on how we resolve our environmental challenges. Further, we are the world’s third-largest carbon emitter and will play a crucial role in getting the planet to a low-carbon trajectory. Simply put, we must urgently transform our economy to get to the green frontier.

    Mains question

    Q. As the world copes with the repercussions of carbon emissions, there is growing pressure to achieve climate-compatible growth. In this context What do you understand by the term green finance? Discuss how it will help to achieve climate-compatible growth along with limitations of green finance.

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  • GST Compensation dues

    The West Bengal CM has said that slashing State levies on petrol and diesel will be possible only if the Centre clears its outstanding dues of over ₹97,000 crore, which includes compensation for implementing the Goods and Services Tax (GST).

    What is GST?

    • GST launched in India on 1 July 2017 is a comprehensive indirect tax for the entire country.
    • It is charged at the time of supply and depends on the destination of consumption.
    • For instance, if a good is manufactured in state A but consumed in state B, then the revenue generated through GST collection is credited to the state of consumption (state B) and not to the state of production (state A).
    • GST, being a consumption-based tax, resulted in loss of revenue for manufacturing-heavy states.

    Compensation under GST regime

    • Due to the consumption-based nature of GST, manufacturing states like Gujarat, Haryana, Karnataka, Maharashtra and Tamil Nadu feared a revenue loss.
    • Thus, GST Compensation Cess or GST Cess was introduced by the government to compensate for the possible revenue losses suffered by such manufacturing states.
    • However, under existing rules, this compensation cess will be levied only for the first 5 years of the GST regime – from July 1st, 2017 to July 1st, 2022.
    • Compensation cess is levied on five products considered to be ‘sin’ or luxury as mentioned in the GST (Compensation to States) Act, 2017 and includes items such as- Pan Masala, Tobacco, and Automobiles etc.

    Distributing GST compensation

    • The compensation cess payable to states is calculated based on the methodology specified in the GST (Compensation to States) Act, 2017.
    • The compensation fund so collected is released to the states every 2 months.
    • Any unused money from the compensation fund at the end of the transition period shall be distributed between the states and the centre as per any applicable formula.

    Significance of GST compensation

    • States no longer possess taxation rights after most taxes, barring those on petroleum, alcohol, and stamp duty were subsumed under GST.
    • GST accounts for almost 42% of states’ own tax revenues, and tax revenues account for around 60% of states’ total revenues.
    • Finances of over a dozen states are under severe strain, resulting in delays in salary payments and sharp cuts in capital expenditure outlay amid the pandemic-induced lockdowns and the need to spend on healthcare.

    What is the status of the outstanding GST compensation due to the States?

    • The Finance Ministry said that outstanding GST compensation dues to States for 2021-22 stood at ₹78,704 crore.
    • This means that dues have been remitted to States for the eight-month period of April 2021 till November 2021.
    • Normally, compensation for 10 months from April-January of any financial year is released during that year and the compensation for February-March is released only in the next financial year.
    • The pending amount will also be released as and when the amount from cess accrues in the compensation fund.

    Also read:

    [Burning Issue] GST Compensation

     

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  • [Sansad TV] Perspective – NLMC: Utilising Unused Land

  • Bank Deposit Insurance Programme

    The PM has addressed depositors during a programme titled ‘Depositors First: Guaranteed Time-bound Deposit Insurance Payment up to ₹5 Lakh’.

    Deposit Insurance Programme

    • The bank savings are insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act providing full coverage to around 98 per cent of bank accounts.
    • Earlier, account holders had to wait for years till the liquidation or restructuring of a distressed lender to get their deposits that are insured against default.
    • Last year, the government raised the insurance amount to Rs 5 lakh from Rs 1 lakh.
    • Prior to that, the DICGC had revised the deposit insurance cover to Rs 1 lakh on May 1, 1993 — raising it from Rs 30,000, which had been the cover from 1980 onward.

    What are new changes?

    • Earlier, out of the amount deposited in the bank, only Rs 50,000 was guaranteed, which was then raised to Rs 1 lakh.
    • Understanding the concern of the poor, understanding the concern of the middle class, we increased this amount to Rs 5 lakh.
    • If a bank is weak or is even about to go bankrupt, depositors will get their money of up to Rs five lakhs within 90 days.

    Significance of the scheme

    • Earlier account holders could not access their own money for up to 8-10 years after financial stress at banks.
    • The new changes would give confidence to depositors and strengthen the banking and financial system.
    • Now, depositors can get insurance money within 90 days, without waiting for the eventual liquidation of the distressed banks.

     

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  • Government Securities Acquisition Programme (GSAP 2.0)

    The Reserve Bank of India (RBI) has announced that it will conduct an open market purchase of government securities of ₹25,000 crore under the G-sec Acquisition Programme (G-SAP 2.0).

    Answer this PYQ in the comment box:

    Q.Consider the following statements:

    1. The Reserve Bank of India manages and services the Government of India Securities but not any State Government Securities.
    2. Treasury bills are issued by the Government of India and there are no treasury bills issued by the State Governments.
    3. Treasury bills offer are issued at a discount from the par value.

    Which of the statements given above is/are correct?

    (a) 1 and 2 only

    (b) 3 Only

    (c) 2 and 3 only

    (d) 1, 2 and 3

     

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    What are Government Securities?

    • These are debt instruments issued by the government to borrow money.
    • The two key categories are:
    1. Treasury bills (T-Bills) – short-term instruments which mature in 91 days, 182 days, or 364 days, and
    2. Dated securities – long-term instruments, which mature anywhere between 5 years and 40 years

    Note: T-Bills are issued only by the central government, and the interest on them is determined by market forces.

    Why G-Secs?

    • Like bank fixed deposits, g-secs are not tax-free.
    • They are generally considered the safest form of investment because they are backed by the government. So, the risk of default is almost nil.
    • However, they are not completely risk-free, since they are subject to fluctuations in interest rates.
    • Bank fixed deposits, on the other hand, are guaranteed only to the extent of Rs 5 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC).

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