RBI to allow retail investors to directly enter govt securities market

On Friday, in a significant decision aimed at promoting small investors to become direct investors in government bonds or simply an indefinite source of government borrowing, the Reserve Bank said it would enable them to purchase government debt directly, making India the first Asian country to do so and among a few globally.

The central bank, responsible for implementing a value of Rs. 12 lakh crore (US$ 164.37 billion) in the next fiscal government borrowing goal, expects that the change would allow the gold market in particular to become more profound and the overall debt market in general to deepen the financial markets as the lack of depth has been the largest ban on the national debt market all the while.

The RBI has provided a large, endless tap to borrow from the government—just as it is now done in the domestic stock market, with the only exception being that it will be under the RBI's direct supervision.

The RBI is currently allowing small investors to purchase government bonds through the Gobid BSE and NSE platform

Although no country, allows direct retail participation as RBI has now allowed. Britain, Brazil and Hungary allow small investors to purchase/sell through third-party controls.

This is the second massive opportunity that the RBI is taking to enable retail investors to enter the gold market after a few years ago permitting entry through the stock exchanges.

All investor has to open a golden securities account ('retail direct') with the RBI, while specifics of the facility will be released separately.

While announcing the monetary policy, Governor Mr. Shaktikanta Das stated that as part of ongoing efforts to increase retail participation in government securities and to enhance ease of access, it was agreed to step beyond the aggregator model and provide online retail investors with a access to government securities market (primary and secondary). In addition to this, investors have the facility to open a gilt securities account (retail direct) with the RBI.

With several initiatives such as the implementation of non-competitive bidding in primary auctions, allowing stock exchanges to serve as aggregators/facilitators for retail investors and allowing odd-lot segments in the secondary market of NDS-OM (negotiated dealing system-order matching), RBI has long promoted retail involvement in the government securities market.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.