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Tuesday, August 03, 2021

RBI Retail Direct scheme to woo individual investors for G-secs

As part of continuing efforts to raise retail participation in G-secs and to improve ease of access, the RBI decided to move beyond aggregator model and provide retail investors online access to the

By: ENS Economic Bureau | Mumbai |
July 13, 2021 3:47:27 am
Roadblock for rate transmission: External benchmark-linked loans rise, but MCLR still dominantThe share of outstanding loans linked to external benchmarks like the Repo rate introduced by the Reserve Bank of India rose significantly in the last two years. (File photo)

The Reserve Bank of India (RBI) on Monday announced the ‘RBI Retail Direct’ scheme, a one-stop solution to facilitate investment in government securities (G-secs) by individual investors.

As per the central bank, under the ‘RBI Retail Direct’ scheme, retail investors (individuals) will have the facility to open and maintain the ‘Retail Direct Gilt Account’ (RDG Account) with the RBI. “RDG account can be opened through an online portal provided for the purpose of the scheme,” it said.

The online portal will give registered users access to primary issuance of G-secs and access to NDS-OM. The date of commencement of the scheme will be announced later. “Encouraging retail participation in the Government securities market has been the focus area of the government of India and the RBI,” the RBI said.

Explained

Previous attempts

regulators earlier tried to popularise G-secs among retail investors through the NSE GoBid app or retail debt market (RDM) segment of the exchange. But these did not have the desired result due to lack of liquidity. The RBI’s intention now is to make the process of G-sec trading smoother for small investors.

Accordingly, initiatives viz. introducing non-competitive bidding in primary auctions, permitting bourses to act as aggregators or facilitators for retail investors and allowing odd-lot segment in NDS-OM secondary market have been taken in the past.

As part of continuing efforts to raise retail participation in G-secs and to improve ease of access, the RBI decided to move beyond aggregator model and provide retail investors online access to the

G-sec market — both primary and secondary — along with the facility to open their gilt securities account (retail direct) with the RBI.

The G-sec market is dominated by institutional investors such as banks, mutual funds and insurance companies. These entities trade in lot sizes of Rs 5 crore or more. So, there is no liquidity in the secondary market for small investors who would want to trade in smaller lot sizes. In other words, there is no easy way for them to exit their investments. Thus, currently, direct G-secs trading is not popular among retail investors.

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