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Sunday, November 28, 2021

RBI Retail Direct Scheme: India is opening its $1.1 trillion bond market to retail buyers

RBI Governor Shaktikanta Das had first flagged this initiative in a February policy review while calling it a “major structural reform”.

By: Bloomberg |
November 10, 2021 3:07:22 pm
The move comes at a time when rising inflation adds pressure on the RBI to lift rates. (File photo)

India is set to open up its sovereign bond market to individual buyers on Friday as it seeks to widen the investor base to fund the government’s massive borrowing program.

Prime Minister Narendra Modi will launch the so-called ‘RBI Retail Direct Scheme’ for investors on Friday, the Reserve Bank of India said in a media invite. Retail investors can open and maintain their government securities account with the RBI free of cost, it said.

RBI Governor Shaktikanta Das had first flagged this initiative in a February policy review while calling it a “major structural reform”. In July, the central bank said investors will have access to bidding in primary auctions as well as the central bank’s trading platform for government securities called Negotiated Dealing System-Order Matching Segment, or NDS-OM.

The move comes at a time when rising inflation adds pressure on the RBI to lift rates. Tighter monetary policy is likely to weaken the demand for bonds, making it challenging for the government to execute its near-record borrowing program. Other emerging-market nations in Asia like the Philippines have also sought to raise funds from citizens to battle the pandemic.

“Given low rates on bank fixed deposits and perception of low risk on government bonds, retail investors may be inclined to venture into direct investing in gilts,” said Pankaj Pathak, fund manager at Quantum Asset Management Co. “However, investors should be cautious of the market risk associated with long-term gilts.”

Yields on India’s benchmark 10-year government bonds have risen in the past five months amid surging crude prices. They’ve eased in November after New Delhi cut tax on retail fuels. A report on Friday is expected to show consumer inflation accelerated to 4.40% in October from 4.35% in the previous month, according to a Bloomberg survey.

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