RBI opens govt bonds to individual buyers
NEW DELHI: India opened its ₹74 lakh crore government bond market to individual investors on Friday as it seeks help from the public to fund its ambitious spending plans.
At its launch on Friday, Prime Minister Narendra Modi said the new scheme -- Reserve Bank of India’s Retail Direct Scheme -“allows the smallest investor to participate in the country’s economic progress”.
“Small investors will be assured of good returns on a secure investment and the government will get the resources it needs for infrastructure development and building a new India.”
Asia’s third-largest economy plans to borrow ₹12 lakh crore via bonds this financial year, ending March 2022, as it embarks on huge investment plans to boost growth in the coronavirus-battered country.
Modi also launched another customer-centric scheme -- Integrated Ombudsman Scheme -- to improve grievance redressal mechanism. The “One Nation, One Ombudsman System” has taken shape in the banking sector with the Integrated Ombudsman Scheme, he said.
The Integrated Ombudsman Scheme seeks to merge other ombudsman schemes making it a One Nation, One Ombudsman System for the entire financial sector.
The launch of these two schemes will expand investment opportunities in the country and ensure easier access to capital markets with simple and secure mechanism, the Prime Minister said.
At the same time, he said, Retail Direct Scheme will also help in garnering funds for development works.
Governments in developed economies have long allowed individuals to invest in bonds, which usually offer smaller returns than other investments but are seen as safer. India follows other emerging market countries like Brazil, the Philippines and Bangladesh in easing public access to its sovereign bond market.
Before Friday, individual investors in India could only buy government bonds through mutual funds and other indirect facilities.
Now they can invest as little as ₹10,000 in them directly through accounts with the central bank.
Observing that one of the biggest touchstones of any democracy is the strength of its grievance redressal system, Modi said the Integrated Ombudsman Scheme will go a long way in that direction. “Similarly, the Retail Direct Scheme will give strength to the inclusion of everyone in the economy as it will bring in the middle class, employees, small businessmen and senior citizens with their small savings directly and securely in government securities. As government securities have the provision of guaranteed settlement, this gives assurance of safety to the small investor,” he said.
Bond experts see this as a crucial step ahead of India’s expected inclusion in global bond market indices early next year, which should help the government raise more money from foreign investors.
“If we are going to allow a lot of foreign investments into the bond market, we should also balance it with domestic investors, so that we get more stability,” Srinivasan MV from Mecklai Financial told AFP.
India raised ₹7 lakh crore
between April and September, largely from institutional investors.
But analysts remain uncertain about the appetite for low-interest long-term government bonds at a time when interest rates are poised to rise as global central banks tighten monetary policy to combat rising inflation.
“(Appetite) may not pick up immediately. It could take some time,” Srinivasan said.
Stressing that a strong banking system is essential for an economy, Modi said the government has taken several measures to strengthen the financial health of the public sector banks.
Highlighting that banking sector reforms ranging from inclusion in the financial sector to technological integration have been carried out in the past few years, he said, “We have seen their strength in this difficult time of Covid-19. The decisions of the RBI also helped in increasing the impact of the big decisions that the government has taken in recent times.”
Lamenting that banking, pension and insurance sector used to be like an exclusive club in India till 6-7 years ago, he said all these facilities were not accessible to the common citizens in the country, poor families, farmers, small traders-businessmen, women, Dalits, etc.
Criticising the earlier system, the Prime Minister said “those who had the responsibility of taking these facilities to the poor never paid any attention to it. Rather, various excuses were made for not changing. It was said that there is no bank branch, no staff, no internet, no awareness, no idea what the arguments were.”
On the importance of fintech, he said Unified Payments Interface (UPI) has made India the world’s leading country in terms of digital transactions in a very short span of time. “In just seven years, India has jumped 19 times in terms of digital transactions. Today our banking system is operational 24 hours, 7 days and 12 months anytime, anywhere in the country,” he said.
Speaking on the occasion, finance minister Nirmala Sitharaman said the coordinated effort of both the finance ministry and RBI in time has led to recovery of economy hit by Covid-19 pandemic.
As a result of concerted efforts, she said, the economic revival is taking place at faster than expected pace. She said the Retail Direct Scheme will facilitate retail participation, deepen the bond market and allow for a fair market determined rates for all the across the yield curve.
“The retail participation has been hesitant all these years, because of the cost involved and because of the traditional intermediary system which has prevailed. Now this will probably bring in a direct cost free, convenience driven, and also build confidence in the retail participation in the government securities,” she said.
RBI governor Shaktikanta Das said the central bank has been leveraging technology and innovation for enhancing the efficiency of its services. “The Reserve Bank with its multifarious role touches the lives of people in varied ways. Be it through the currency system, the banking system, the financial markets, or the 24 into 7 seamless digital payments,” he said.
Das further said that the Reserve Bank’s developmental role is focused on further deepening of financial inclusion and undertaking people centric initiatives. The scheme offers retail investors a new avenue for directly investing in the securities issued by the Centre and the state governments. The investors will be able to easily open and maintain their government securities accounts online with the RBI for free.