This is a distortionary trend, which may emerge as a larger problem for the overall market," said an executive from one of those institutions. The Reserve Bank of India could not be contacted immediately for comments.The lending rate in the special repo market has plunged to near zero from 5% earlier. Market participants normally borrow stock of securities from public sector banks, seen as large holders of government securities, as they go short-selling in the spot market. Next trading day, they have to get deliveries of the same securities through repo transactions. The old series yields fell about five basis points.While some banks with huge bond portfolios have collectively bought those papers, they were reluctant to lend securities in the special repo market, dealers said.

Source: Economic Times March 02, 2017 16:52 UTC