NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to the Indian Financial Markets

Indian Debt Market and Government Securities Explained

Updated 11 October 2026 · Fact-checked

The Indian debt market is where governments and companies borrow by issuing bonds and bills, and investors lend and earn interest. Government securities (G-secs), T-bills, state development loans (SDLs) and corporate bonds are the main instruments. Solve questions by identifying the issuer, tenor, credit risk and market segment.

Understand Debt Market and Government Securities

A debt instrument is a loan you give to an issuer. The issuer promises to pay interest and return the principal on a set date. The debt market is where these instruments are issued and traded.

The biggest issuer is the government. Government securities (G-secs) are issued by the Central Government to fund its borrowing. They carry no default risk in rupee terms, because the sovereign issues the currency. Dated G-secs have an original maturity of more than one year and usually pay a fixed coupon every six months. Treasury bills (T-bills) are short-term, with original maturity up to one year. They are issued at a discount and redeemed at face value, with no coupon. They are usually issued in 91-day, 182-day and 364-day tenors.

State Development Loans (SDLs) are dated securities issued by State Governments to meet their borrowing needs. They are auctioned and are usually priced at a small spread over G-secs of similar maturity. This is because the market sees them as slightly less liquid. They are not issued by the Centre.

Corporate bonds are issued by companies, public sector undertakings and financial institutions. They carry credit risk, so they offer a higher yield than G-secs of similar maturity. Their price depends on the credit rating of the issuer. Corporate bonds can be issued by public issue or private placement. Most issuance in India is by private placement.

The Reserve Bank of India (RBI) acts as the debt manager for the Central and State Governments and conducts the auctions. SEBI regulates the issue and listing of corporate bonds. Participants include banks, insurance companies, provident and pension funds, mutual funds, primary dealers, foreign portfolio investors (within limits) and, increasingly, retail investors. Banks and insurers are large holders of G-secs, partly because of regulatory requirements to hold them. Most trading in G-secs happens in the over-the-counter (OTC) market, reported on the RBI's NDS-OM platform. Retail investors can also buy G-secs through the RBI Retail Direct platform.

Key formulas to remember

T-bill pricing: Price = Face value ÷ (1 + yield × days ÷ 365); T-bills are issued at a discount and redeemed at face value. The gain is the difference. Use the formula only if the question gives a yield and days.
Annual coupon: Coupon = Face value × coupon rate; G-secs and most bonds pay half-yearly, so each payment is half the annual coupon.
Current yield: Current yield = Annual coupon ÷ Market price × 100; Uses market price, not face value. It ignores gain or loss on maturity.
Instrument classification: T-bills: up to 1 year, no coupon | Dated G-secs and SDLs: over 1 year, usually fixed coupon; Know the tenor and coupon rule. Most definition questions test this.
Price and yield: Yield ↑ ⇒ Price ↓ and Yield ↓ ⇒ Price ↑; Applies to all fixed-rate bonds.

How to solve Debt Market and Government Securities questions

Use the same short checklist for any debt market question. It stops you being misled by similar-looking options.

1Identify the issuer: Central Government, State Government or company.
2Identify the tenor: up to one year points to T-bills or money market. Above one year points to dated securities.
3Check the return form: discount (T-bill) or coupon (dated G-sec, SDL, bond).
4Check the risk: sovereign means no default risk. Corporate means credit risk and a rating.
5Identify the role: RBI manages auctions, SEBI regulates corporate bonds, and banks and insurers are large holders.
6If numbers are given, calculate the coupon, price or yield with the correct formula and units.
7Eliminate options that mix features, such as a T-bill with a coupon or an SDL issued by the Centre.

Quickest way: Issuer-tenor-risk scan

When to use it: Use this for definition and comparison questions, which are the most common in this topic.

Underline the issuer in the question.
Match it: Centre means G-sec or T-bill, State means SDL, company means corporate bond.
Check tenor: up to 1 year is T-bill.
Choose the option that matches credit risk: none for G-secs, present for corporate bonds.
For numbers, compute coupon first, then compare with price.

Common mistakes in Debt Market and Government Securities

Saying T-bills pay a periodic coupon.
Students link all government securities with coupons.
Fix: T-bills are zero-coupon. They are issued at a discount and redeemed at face value.
Treating SDLs as issued by the Central Government.
The word 'development' and the RBI auction role cause confusion.
Fix: SDLs are issued by State Governments. The RBI only conducts the auction as their debt manager.
Thinking G-secs have no risk at all.
Students hear 'risk-free' and stop thinking.
Fix: G-secs have no default risk in rupee terms but still carry interest rate risk. Prices fall when yields rise.
Using face value instead of market price for current yield.
Coupon rate is based on face value, so students carry on with it.
Fix: Current yield = annual coupon ÷ market price.
Using the full annual coupon for a half-yearly payment.
Students skip the payment frequency in the question.
Fix: Divide the annual coupon by two for each half-yearly payment.
Assuming corporate bonds are mainly sold through public issues.
Students mix them up with equity IPOs.
Fix: Most corporate bond issuance in India is by private placement.

Worked examples

Example 1

A G-sec has a face value of ₹1,00,000 and a coupon rate of 7% per annum, paid half-yearly. It trades at ₹98,000. Find each half-yearly coupon payment and the current yield.

Show the solution

Annual coupon = ₹1,00,000 × 7% = ₹7,000.
Half-yearly coupon = ₹7,000 ÷ 2 = ₹3,500.
Current yield = ₹7,000 ÷ ₹98,000 × 100.
₹7,000 ÷ ₹98,000 = 0.07143, so current yield = 7.14% (approximately).

Answer: Each half-yearly coupon is ₹3,500. The current yield is about 7.14%.

Example 2

Which statement about the Indian debt market is correct? (A) T-bills pay a half-yearly coupon. (B) SDLs are issued by State Governments. (C) Corporate bonds carry no credit risk. (D) G-secs are issued by SEBI.

Show the solution

Check A: T-bills are issued at a discount and have no coupon, so A is wrong.
Check B: SDLs are dated securities issued by State Governments, so B is correct.
Check C: corporate bonds depend on the issuer's ability to pay, so they carry credit risk. C is wrong.
Check D: G-secs are issued by the Central Government, with the RBI as debt manager. SEBI does not issue them. D is wrong.

Answer: (B) SDLs are issued by State Governments.

Exam tips

Expect definition and comparison questions on issuer, tenor and coupon. Learn the four instruments as a table in your head.
Remember the three T-bill points: up to one year, discount issue and no coupon.
Watch for options that say G-secs are 'risk-free'. Check whether the question means default risk or price risk.
Corporate bond questions usually link higher yield to credit risk and ratings. Match that logic.
Negative marking applies. If two options look similar, check the issuer first, then guess only if you can eliminate at least one.

Practice questions from Introduction to the Indian Financial Markets

Debt Market and Government Securities: frequently asked questions

What is the difference between a G-sec and a corporate bond?

A G-sec is issued by the Central Government and has no default risk in rupee terms. A corporate bond is issued by a company and carries credit risk. Because of this, corporate bonds usually offer a higher yield than G-secs of similar maturity.

What are State Development Loans?

SDLs are dated securities issued by State Governments to meet their borrowing needs. They are auctioned, with the RBI as debt manager. They usually trade at a small spread over G-secs of similar maturity.

What is the difference between a T-bill and a dated G-sec?

A T-bill has an original maturity of up to one year and is issued at a discount, with no coupon. A dated G-sec has a longer original maturity and usually pays a fixed coupon every six months.

Who regulates and manages the debt market in India?

The RBI manages government borrowing and conducts auctions of G-secs, T-bills and SDLs. SEBI regulates the issue and listing of corporate bonds. Banks, insurers, pension funds and mutual funds are among the main participants.