An illustrative list of Intermediary Agencies is as under;

1. State Sponsored organizations for on-lending to Weaker Sections@

2. Distributors of agricultural inputs/ implements.

3. State Financial Corporations (SFCs)/ State Industrial Development Corporations (SIDCs) to the extent they provide credit to weaker sections.

4. National Small Industries Corporation (NSIC).

5. Khadi and Village Industries Commission (KVIC)

6. Agencies involved in assisting the decentralized sector.

7. Housing and Urban Development Corporation Ltd. (HUDCO)

8. Housing Finance Companies approved by National Housing Bank (NHB) for refinance.

9. State sponsored organization for SCs/STs (for purchase and supply of inputs to and/or marketing of output of the beneficiaries of these organizations).

10. Micro Finance Institutions/ Non-Government Organizations (NGOs) on lending to SHGs.

@ ‘Weaker Sections’ in Priority Sector includes following:

1. Small and marginal farmers with land holdings of 5 acres and less, landless labourers, tenant farmers and share-croppers;

2. Artisans, village and cottage industries where individual credit requirements do not exceed Rs.25,000/-.

3. Small and marginal farmers, sharecroppers, agricultural and non-agricultural labourers, rural artisans and families living below the poverty lines are the beneficiaries. The family income should not exceed Rs.11,000/- per annum.

4. Scheduled Castes and Scheduled Tribes.

5. Beneficiaries are persons whose family income from all sources does not exceed Rs.7200/- per annum in urban or semi urban areas or Rs.6400/- per annum in rural areas. They should not own any land or the size of their holding does not exceed one acre in the case of irrigated land and 2.5 acres in the case of unirrigated land (land holding criteria do not apply to SC/ST).

6. Beneficiaries under Scheme of Liberation and Rehabilitation of Scavengers (SLRs).

7. Advances granted to Self-Help Groups (SHGs) for reaching the rural poor.

27.1 Duration (also known as Macaulay Duration) of a bond is a measure of the time taken to recover the initial investment in present value terms. In simplest form, duration refers to the payback period of a bond to break even, i.e., the time taken for a bond to repay its own purchase price. Duration is expressed in number of years. A step by step approach for working out duration is given in the Box IV below.

More formally, duration refers to:

1. The weighted average term (time from now to payment) of a bond's cash flows or of any series of linked cash flows.

2. The higher the coupon rate of a bond, the shorter the duration (if the term of the bond is kept constant).

3. Duration is always less than or equal to the overall life (to maturity) of the bond.

4. Only a zero coupon bond (a bond with no coupons) will have duration equal to its maturity.

What is Modified Duration?

27.2 Modified duration (MD) is a modified version of Macaulay Duration. It refers to the change in value of the security to one per cent change in interest rates (Yield). The formula is

Illustration

In the above example given in Box IV, MD = 1.86/(1+0.09/2) = 1.78

Duration is useful primarily as a measure of the sensitivity of a bond's market price to interest rate (i.e., yield) movements. It is approximately equal to the percentage change in price for one percent change in yield. For example the duration is the approximate percentage by which the value of the bond will fall for a 1% per annum increase in market interest rate. So, a 15-year bond with a duration of 7 years would fall approximately 7% in value if the interest rate increased by 1% per annum. In other words, duration is the elasticity of the bond's price with respect to interest rates. This ignores convexity explained in para 24.7

What is PV 01?

27.3 PV01 describes the actual change in price of a bond if the yield changes by one basis point (equal to one hundredth of a percentage point). It is the present value impact of 1 basis point (0.01%) (1%=100 bps) movement in interest rate. It is often used as a price alternative to duration (a time measure). Higher the PV01, the higher would be the volatility (sensitivity of price to change in yield).

Illustration

From the modified duration (given in the illustration under 27.2), we know that the security value will change by 1.78% for a change of 100 basis point (1%) change in the yield. In value terms that is equal to 1.78*(101.79/100) = ₹ 1.81.

Hence the PV01 = 1.81/100 = ₹0.018, which is 1.8 paise. Thus, if the yield of a bond with a Modified Duration of 1.78 years moves from say 9% to 9.05% (5 basis points), the price of the bond moves from ₹101.79 to ₹101.70 (reduction of 9 paise, i.e., 5x1.8 paise).

What is Convexity?

27.4 Calculation of change in price for change in yields based on duration works only for small changes in yields. This is because the relationship between bond price and yield is not strictly linear. Over large variations in yields, the relationship is curvilinear i.e., the reduction in option free bond price is less than the change calculated based only on duration for yield increase, and increase in option free bond price will be more than the change calculated based only on duration for yield decrease. This is measured by a concept called convexity, which is the change in duration of a bond due to change in the yield of the bond.

In addition to the security features listed above, banknotes issued after introduction of MG series-2005 have the year of printing on the reverse of the banknotes which is not present in the pre-2005 series.

Ans: No, since the Company is not fulfilling the Principal Business Criteria (asset-income pattern) of an NBFC i.e. more than 50 % of its total assets should be financial assets and the income derived from these assets should be more than 50% of the gross income, it is not required to register as an NBFC under Section 45 IA of the RBI Act, 1934. However it should register itself as an NBFC as soon as it fulfills the criteria of an NBFC and comply with the NBFC norms.

The returns on Government securities are dependent on various features of the securities. You may refer to ‘Government Securities Market- A primer’, published on RBI website, to understand the factors affecting the returns on government securities.