The Reserve Bank of India (RBI) on Friday allowed retail investors to directly buy government debt or G-Secs, the first in Asia to allow direct purchases and among the very few globally.
While the move will broaden the investor base, it remains to be seen if retail investors will take up the option as past attempts have not yielded good results.
A G-Sec is an instrument issued by the central government or the states and, therefore, offers maximum safety. They are short term (called treasury bills, with original maturities of less than one year) or long term dated securities. They carry a fixed or floating coupon (interest rate) which is paid on the face value, on a half-yearly basis.
Generally, the tenor of dated securities ranges from 5 years to 40 years. At present, banks, mutual funds, provident funds and insurance companies are the major buyers of these instruments.
The RBI on Friday said retail investors can directly open an account with it and buy or sell government securities in both the primary and secondary markets. Modalities of the scheme called Retail Direct will be announced in the coming days.
At present, the central bank allows retail investors to buy government bonds through the goBID platform on the BSE and the NSE.
They could also place non-competitive bids in auctions of government securities.
“The Centre and the RBI have taken several measures to encourage retail investment in government securities... it is proposed to provide retail investors with online access to the government securities market,” RBI governor Shaktikanta Das said on Friday.
Deputy governor B.P. Kanungo said the move will pave the way for investors to open accounts in the e-kuber platform.
G-Secs are issued through auctions conducted by the RBI and these auctions are conducted on the electronic platform called the e-kuber, which is the Core Banking Solution (CBS) platform of the Reserve Bank. Commercial banks, urban cooperative banks, primary dealers, insurance companies and provident funds are members of this electronic platform.
While experts welcomed the proposal, they pointed out that a key challenge was liquidity as retail investors invest small amounts.
"The move is likely to broaden investor base and provide retail investors enhanced access to participate in the government securities market’’ Abheek Barua, Chief Economist, HDFC Bank said.