RBI has issued a scheme to market government securities to retail investors who can now register and maintain a Retail Direct Gilt account with the central bank. Your view?
This is a move in the right direction. This was announced in the February policy and RBI had mentioned that they will have a look at the modus operandi. We have finally seen the light of the day.
How will this play out for the Indian retail investors? I understand they need a rupee savings bank account maintained in India as well as PAN?
Yes, that is going to be a prerequisite but that is not going to be a showstopper because gilt markets are for those who understand the nuances of it. So, initially there might not have a very mass retail participation but certainly the evolved HNIs who understand these markets and who have been participating in fixed income markets could be the first port of call. As awareness builds up, more people would be participating. The RBI has eased the entire process so that it becomes amenable for mass retail investors also to join the bond market.
How do you see this move deepening the bond market in India?
For starters, in the gilt category in mutual funds, there are just about 2 lakh portfolios and the AUMs are just about Rs 17,000-18,000 crore. Now this is another instrument which will allow a more widespread participation into the government bond market. Also for those investors who would have been patronising tax free bonds, this could be another alternative sans credit risk. If you look at the yield curve of tax free bonds, investors usually prefer the 15-20-year or longer tenure bonds for a regular set of cash flows. With the yields on the rise, even those kinds of investors can find favour with these kinds of instruments. But it is going to be a slow burner. We are not going to see overnight miracles but certainly it had to be initiated at some point of time as it was mentioned in RBI’s February policy.
