NEW DELHI: In a game-changer move, the Reserve Bank of India (RBI) on Friday said it would allow retail investors to buy government bonds directly from it. Currently, retail investors can only buy gilt or government issued bonds through a platform on the National Stock Exchange. However, this is not very popular. The RBI platform for G-Secs is likely to be dubbed Retail Direct, though its details have not been shared. The current yield on a 10-year government bond is 6.126%.
Bonds with shorter tenor yield less as interest.“As far as I know, very few countries like the US and Brazil allow this. In Asia, we are the first country to do it,” RBI Governor Shaktikanta Das told reporters on Friday soon after the monetary policy meeting.
The move to attract retail investors to the gilt market will help the government meet its market borrowing target of Rs 12 lakh crore. Analysts said the reason why RBI is opening up a direct gilt trading window for small buyers is to widen the market for government bonds and to keep the interest rate paid by the government low.
“While a promising move, a lot will depend on the platform and parallel investment opportunities available,” said Nimish Shah, chief investment officer, Waterfield Advisors. Meanwhile, RBI’s six-member monetary policy committee did not spring any surprises on Friday as key policy rates were kept unchanged.
Repo and reverse repo rates currently stand at record low levels of 4% and 3.35%, respectively. Among others, the first monetary policy announcement after the Union Budget 2021-22 had a few key elements: restoration of the cash reserve ratio (CRR) to 4% in a gradual manner. CRR is the share a bank’s total deposits that is parked with RBI. Banks don’t earn interest on this amount.
RBI also said it estimates India’s GDP growth at 10.5% during FY22, with an optimistic outlook on economic recovery. Rural demand is likely to be resilient on good agricultural prospects while urban demand and demand for contact intensive services is expected to strengthen with fall in Covid-cases and mass-vaccination drive. Consumer confidence is likely to remain upbeat as demand has moved beyond the ‘pent-up’ phase to actual demand. The central banks said inflation has returned within its ‘tolerance band’, revising inflation at 5.2% for Q4FY21 from 5.8% earlier).
What are G-Secs?
Government Security (G-Sec) is a tradeable instrument issued by the central or state governments. G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments