E-Paper
Retail investors can now buy G-Securities directly
Allowing retail investors to invest in sovereign debt will broaden the investor base and help absorb the government’s ₹12 lakh crore borrowing plan to fund higher healthcare and infrastructure spending.
Retail investors will now be able to directly bid for government securities (G-Secs) in Reserve Bank of India auctions, a move that may also help fund the government’s massive borrowing plan for the next fiscal.
Until now, only institutional investors were allowed to bid directly for government bonds, although retail investors are allowed to buy them through stock exchanges.
“This is a major structural reform. I am saying so because the world over only a few countries, like the US and Brazil, offer this facility. In Asia, we are the first country to do it,” RBI governor Shaktikanta Das told reporters a press conference.
Retail investors will now be able to directly bid for government securities (G-Secs) in Reserve Bank of India auctions, a move that may also help fund the government’s massive borrowing plan for the next fiscal.
Until now, only institutional investors were allowed to bid directly for government bonds, although retail investors are allowed to buy them through stock exchanges.
“This is a major structural reform. I am saying so because the world over only a few countries, like the US and Brazil, offer this facility. In Asia, we are the first country to do it,” RBI governor Shaktikanta Das told reporters a press conference.
Allowing retail investors to invest in sovereign debt will broaden the investor base and help absorb the government’s ₹12 lakh crore borrowing plan to fund higher healthcare and infrastructure spending.
“For many years, we have been trying to broad-base the government securities market. With the size of the government borrowing, it is necessary that the investor base is broadened,” said RBI deputy governor B.P. Kanungo at the same meet.
The move benefits retail investors who would be able to buy G-Secs directly at lower rates. G-Secs allow investment for the long term, where an investor can get marginally better rates than fixed deposits—along with a sovereign guarantee. Yields of securities that will mature in 2025 and 2030 are 5.49% and 6.07%, respectively. The 5-10 year term FD rate in State Bank of India is 5.40%.
RBI doesn’t expect the move to squeeze inflows into investment options such as bank deposits, mutual funds or small-savings schemes.
“As the size of the economy grows, the total volume of savings and deposit will expand. Banks have many services and functions that they render. We don’t think it will undermine the flow of deposit to banks and mutual funds. It is one more avenue. The process is now made much easier. Remember that small savings offer much higher rates than bank fixed deposits. Notwithstanding that, bank deposits this year have grown by 11.3% (deposit growth). We don’t feel that it would cut into bank deposits,” said Das.
Currently, retail investors can buy G-Secs through stock exchanges, which is called an aggregation model. Retail investors can also buy treasury bills and state development loans on stock exchanges’ platforms.
Of the total G-Secs that are auctioned, 5% are reserved for non-competitive bidding meant for retail investors. In non-competitive bids, the interest rates are pre-decided, based on the weighted average price in the auction. After registering on the National Stock Exchange’s NSE goBID or BSE’s Direct platform, an investor can place orders on the day of the auction, which typically happens every week.
RBI allots bonds to exchanges, which are transferred into the demat account of investors. An alternative for a retail investor is to place an order with the broker of the exchange instead of going on the stock exchange’s platform. Now, the central bank wants to bring investors on its platform so that they can participate in auctions (primary market) and also buy and sell securities in the secondary market.
According to governor Das, RBI will soon be issuing a circular, specifying how retail investors can bid for G-Secs and trade them in the secondary market.
