Online purchase of government bonds looks good on paper, but may not be successful immediately

Online purchase of government bonds looks good on paper, but may not be successful immediately

KOLKATA: The Reserve Bank of India has allowed small investors to buy government securities online to make retailing of government bonds a success.

This will broaden the investor base and provide retail investors with enhanced access to participate in the government securities market, Governor Shaktikanta Das said.

“This is a major structural reform placing India among a select few countries which have similar facilities,” Das said Friday.

However, it may still be a non-starter given the low return the dated stocks give and the illiquid nature of this market. Out of 93 listed government securities for a cumulative amount of Rs 69 lakh crore, merely eight or nine are being traded every day with half of them witnessing a very insignificant number of transactions.

Getting about 6% return for 10 years is an inferior option compared to investing in 7.15% RBI bonds, which also carry 100% government backing, said Care Ratings chief economist Madan Sabnavis.

The securities become liquid only when these become benchmarks for five or 10 years. Benchmarks change periodically, so it would be difficult for retail investors to track these, Sabnavis said.

RBI and the government have been trying to encourage retail investment in government securities for several years without success. Past measures to encourage retail participation include introduction of non-competitive bidding in primary auctions, permitting stock exchanges to route primary purchases and allowing a specific retail segment in the secondary market.

Governor Das however expects the online purchase of G-sec, together with HTM (held-to-maturity) relaxation, would facilitate smooth completion of the government borrowing programme in 2021-22.

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