The Reserve Bank of India (RBI) will launch the much-talked about inflation-indexed bonds (IIBs) on June 4. Through these bonds,the central bank aims at incentivising households to invest in financial instruments rather than gold.
The RBI will sell inflation-indexed bonds of 10-year maturities that would realise Rs 1,000-2,000 crore each month and aggregate to Rs 12,000-15,000 crore by the end of the fiscal. The principal will be indexed to the wholesale price index (WPI) with a four-months lag,while the coupon will remain fixed,the RBI said.
The RBI has decided to issue initial series for all categories of investors including institutional investors and,later,another series,exclusively for retail investors.
For appropriate price discovery and market development,it is however,necessary to issue comparable instruments through auctions to the institutional investors such as pension funds,insurance and mutual funds. This will create demand for IIBs and help in making them tradable in the secondary market, the RBI said.
To target greater retail participation,the central bank has enhanced the non-competitive segment to 20 per cent from the present level of 5 per cent applicable to auction of government securities.
IIBs will be having a fixed real coupon rate and a nominal principal value that is adjusted against inflation. Periodic coupon payments are paid on adjusted principal.
At maturity,the adjusted principal or the face value,whichever is higher,will be paid,the RBI said.
The bond would be protected from inflation through the final WPI will be used for providing inflation protection in this product.
Final WPI with four months lag will be used,i.e. Sept 2012 and Oct 2012 final WPI will be used as reference WPI for Feb 1,2013 and March 1,2013,respectively. The reference WPI for dates between Feb 1 and March 1,2013 will be computed through interpolation, it said.
The central bank said that a second series of IIBs exclusively for retail investors will be issued in second half of the financial year.
RBI will sell bonds worth R1,000-2,000 crore each month for a total of R12,000-15,000 crore by the end of FY14
The principal will be indexed to the wholesale price index with four months lag,while the coupon would remain fixed
The principal would be adjusted against inflation and at maturity,this principal or the face value,whichever is higher,would be paid