RBI Raises Bond-Trading Targets For Primary Dealers By 48%

Reserve Bank of India has significantly increased bond-trading targets for the country’s primary dealers in an effort to strengthen liquidity in the government securities market. The revised targets, which apply to the financial year beginning in April, require each of the country’s 21 primary dealers to trade a minimum of 4 trillion rupees worth of bonds, representing a 48 per cent increase from the previous year’s requirement.

According to people familiar with the matter, the Reserve Bank of India informed primary dealers of the updated targets through written communication as part of its annual operational guidelines. The move is aimed at boosting participation and trading activity in India’s sovereign debt market at a time when investors are navigating volatility linked to currency fluctuations and rising global oil prices. The individuals cited in the report requested anonymity because the details are not publicly disclosed.

The impact of the revised targets is already being reflected in market activity. Data compiled by Bloomberg showed that daily trading volumes in India’s benchmark 10-year government bond — considered the country’s most actively traded debt instrument — rose by around 40 per cent in April compared with March. Overall bond market trading volumes also increased by approximately 15 per cent during the same period, suggesting stronger market participation following the RBI’s directive.

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The central bank’s decision aligns with broader efforts by RBI Governor Sanjay Malhotra to deepen liquidity and improve efficiency in India’s government bond market. Enhancing liquidity in sovereign debt is viewed as important for maintaining stable borrowing costs, improving price discovery, and attracting wider institutional participation in India’s fixed-income market. Analysts believe higher trading obligations for primary dealers could help sustain liquidity even during periods of heightened financial uncertainty.

Primary dealers play a crucial role in India’s debt market by underwriting government bond issuances and facilitating secondary market trading. The RBI typically sets annual trading targets based on a percentage of average trading volumes recorded over the previous three years. By raising these benchmarks sharply, the central bank appears to be encouraging more active market-making and ensuring smoother functioning of the bond market as government borrowing requirements remain elevated.

The RBI did not immediately respond to requests for comment on the revised trading requirements. The Primary Dealers' Association of India also did not issue an immediate response. Market participants, however, expect the higher trading quotas to keep bond market volumes elevated through the current financial year, potentially improving resilience in India’s debt markets amid ongoing global economic and geopolitical pressures.

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