In a move that will make it easier for the government to raise loans from the market by expanding the investor base hugely, the RBI on Friday said that it will allow retail investors to trade in government bonds directly.
With this, India now joins countries such as Japan and Brazil, which have allowed direct retail participation in their gilt market.
At present, the Indian government bond market is dominated by institutional investors such as mutual funds, banks and insurance companies. In 2016, the RBI allowed small investors to buy government bonds via the Gobid platform on BSE and NSE but that could not take off in a major way.
The government has announced a whopping Rs 12 lakh crore borrowing programme in the next financial year 2021-22.
Through such a reform, the RBI will not only be able to manage the government’s large borrowing programme very smoothly but can also impact people’s saving habits in a major way.
Individual investors are likely to flock to the government-owned securities, which give almost equal or sometimes, even better return than fixed deposit products.
“The measure will have a positive impact on financial savings, which is expected to reach 21.4% of GDP in 2020-21, up from 10% in January-March quarter of 2019-20,” State Bank of India group Chief Economist Soumya Kanti Das said.
Under the new investment plan, an investor needs to open a gilt securities account (’retail direct’) with the RBI, the central bank said.
“As part of continuing efforts to increase retail participation in government securities and to improve ease of access, it has been decided to move beyond aggregator model and provide retail investors online access to the government securities market, both primary and secondary, along with the facility to open a gilt securities account (retail direct) with the RBI,” Governor Shaktikanta Das said while announcing the monetary policy.
RBI had earlier introduced initiatives such as non-competitive bidding in primary auctions and permitting stock exchanges to act as aggregators/facilitators for retail investors, to encourage retail participation in the government securities market.
Economists said that through a single stroke of its pen, the RBI has opened the floodgates for the government to borrow infinitely from the market, of course, under its watch.