Two other major international rating agencies Fitch and S&P had cut the credit rating of Africa's most developed economy to sub-investment level in 2017.
The move is aimed at providing an efficient tool for managing interest rate risk and exposure through hedging.
Former Sebi chairman UK Sinha said the corporate bond market can develop only on the back of a very vibrant government bond market.
The central bank said late on Friday it will sell 100 billion rupees ($1.55 billion) of government bonds on Thursday
The 6.79% government security maturing in 2029 climbed to Rs 100.78 from Rs 100.59 on Tuesday, while its yield edged down to 6.70% from 6.72%.
The move left Italy's rating just two notches above junk status and could raise already-painful borrowing costs.
The limit of overseas investment in government bonds has been raised by $5 billion to $20 billion.
LIC enjoys Moody's Baa2 rating with a stable outlook, which is higher than the agency's Baa3 sovereign rating for India.
The RBI said it will keeps right to decided on the quantum of purchase of individual securities.
RBI has cut its interest rate by a total of 3.5 percentage points to 5.5 per cent.
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