RBI Retail Direct scheme

Context:

Recently, RBI has issued the Retail Direct scheme to bring investments from individual investors into government securities

About:

• To increase retail participation in government securities, ‘the RBI Retail Direct’ facility was announced in the Statement of Developmental and Regulatory Policies dated February 05, 2021.
• Scheme introduced for improving ease of access by retail investors through online access to the government securities market – both primary and secondary – along with the facility to open their gilt securities account (‘Retail Direct’) with the RBI.

• Retail Investor is a non-professional investor who buys and sells securities or funds that contain a basket of securities such as mutual funds and Exchange Traded Funds (ETFs).
• A Gilt Account can be compared with a bank account, except that the account is debited or credited with treasury bills or government securities instead of money.
• It is a one-stop solution to facilitate investment in G-secs by individual investors.
  • RBI seeks to democratize the ownership of government debt securities beyond banks and managers of pooled resources such as mutual funds.

The highlights of the RBI Retail Direct scheme are:

1. Retail investors (individuals) will have the facility to open and maintain the ‘Retail Direct Gilt Account’ (RDG Account) with RBI.
2. RDG Account can be opened through an ‘Online portal’ provided for the purpose of the scheme.
3. The ‘Online portal’ will also give the registered users the following facilities:
4. Access to primary issuance of Government securities
5. Access to NDS-OM.

Scope of the Scheme

a. ‘RBI Retail Direct’ is a comprehensive scheme which provides the following facilities to retail investors in government securities market through an online portal:

• Open and maintain a ‘Retail Direct Gilt Account’ (RDG Account)
  • Access to primary issuance of Government securities
  • Access to NDS-OM

Eligibility

1. Retail investors, as defined under the scheme, can register under the Scheme and maintain a RDG Account, if they have the following:
2. Rupee savings bank account maintained in India;
3. Permanent Account Number (PAN) issued by the Income Tax Department;
4. Any OVD for KYC purpose;
5. Valid email id; and
6. Registered mobile number.
7. Non-Resident retail investors eligible to invest in Government Securities under Foreign Exchange Management Act, 1999 are eligible under the scheme.
8. The RDG account can be opened singly or jointly with another retail investor who meets the eligibility criteria.

Current G-Sec Market:

• The G-sec market is dominated by institutional investors which are large market actors such as banks, mutual funds and insurance companies.
  • These entities trade in lot sizes of Rs 5 crore or more.
• So, there is no liquidity in the secondary market for small investors who would want to trade in smaller lot sizes.
  • The primary market is where securities are created, while the secondary market is where those securities are traded by investors.
• There is no easy way for them to exit their investments. Thus, currently, direct G-secs trading is not popular among retail investors.

Significance:

• Improved Ease of Access:
• It will make the process of G-sec trading smoother for small investors therefore it will raise retail participation in G-secs and will improve ease of access.

• Facilitate Government Borrowings:

This measure together with relaxation in mandatory Hold To Maturity (securities that are purchased to be owned until maturity) provisions will facilitate smooth completion of the government borrowing programme in 2021-22.

• Financialise Domestic Savings:

Allowing direct retail participation in the G-Sec market will promote financialisation of a vast pool of domestic savings and could be a game-changer in India’s investment market.

What are Government Securities (G-secs)?

• A Government Security(G-Sec) is a tradable instrument issued by the Central Government or the State Governments. It acknowledges the Government’s debt obligation.  
• Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more).  
• In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities which are called the State Development Loans (SDLs). 

Other types of investments: 

1. Government of India Treasury Bills. 
2. Government of India dated securities. 
3. Sovereign Gold Bonds (SGB). 
4. State Development Loans (SDLs).

Source: Indian Express

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