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RBI pushes for retail participation in state government bonds

Banking regulator asks exchanges to act as facilitators and bid aggregators

June 06, 2019 / 04:30 PM IST

In a move that is expected to broaden the scope of the sovereign debt market, the Reserve Bank of India (RBI) has focused on increased retail participation. The regulator asked stock exchanges to act as facilitators or aggregators of bids of their stockbrokers or other retail participants. Further, these bids are to be submitted as a single consolidated bid under the non-competitive segment of the primary auctions of State Development Loans (SDL).

SDLs are bonds issued by various state governments from time to time to fund their fiscal deficit. The gap between States’ revenues and expenses is funded by borrowing from institutions such as life insurance companies, mutual funds and the employee provident fund.

State debt, a large market

SDLs form a significant part of the government securities market in India and around Rs 27 lakh crore worth of SDLs are outstanding, as per industry estimates. According to the RBI, the Government of India bonds outstanding as on June 3 are worth Rs 57 lakh crore.

The National Stock Exchange launched the NSE Go-bid app, while the BSE launched the BSE Direct web platform that facilitates retail bidding in primary auctions of Government of India Securities. Today, the RBI made it clear that the stock exchanges should extend this facility for bidding in SDL by retail investors. This will be implemented only after consultation with the respective State Governments.

Close

“Most investors are not aware of the investment opportunities in the government securities market. That leads to very low participation,” observes Joydeep Sen, founder of wiseinvestor.in

The interest rates payable on these government securities are lower than those offered by small saving schemes, which also come with sovereign guarantee and ease of transaction.

“In addition to the lack of awareness among the general public pertaining to government securities, one is forced to hold on to his investments in government securities due to want of secondary market liquidity. That makes them an unattractive option for most retail investors,” says Vikram Dalal, founder and managing director, Synergee Capital Services.

The RBI has been trying its best to add depth to the government bond market by attracting more participants. In the previous monetary policy review announced on April 4, the RBI announced its intentions of opening the government securities markets to non-resident Indians.

Enhanced participation from buyers is expected to boost demand for government securities and thereby bring down the cost of borrowing for the government of India. The benchmark 10-year bond’s yield came down to 6.9 per cent from 7.02 per cent on Wednesday.

Retail participants can log in to the platforms provided by stock exchanges and submit their bids. Retail investors are allowed to bid for treasury bills as well as government bonds. The same process is expected for bidding in SDL auctions as well. After consulting with the respective state governments, the facility will be made operational. Investors can keep a track of the same to tap into suitable opportunities.
Nikhil Walavalkar
first published: Jun 6, 2019 04:27 pm

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