Of the various investment avenues available to the public, the one that would have been the best from credit-risk perspective — government securities (also known as gilt-edged securities or gilts) — is conspicuous by its absence.
The reason is that the market is wholesale where the participants are financial institutions like banks, insurance companies, etc. Though, on paper, nothing prohibits an individual from entering that market, practically, it is out of bounds. The only security, issued by the government of India, available to retail investors is the 8% Savings (Taxable) Bond 2003, which has restrictions (it is not tradable in the secondary market and is not transferable) and the tenure is fixed at six years.
The government finances a large part of its deficit through market borrowings, i.e., by issuing government securities that are subscribed to by financial institutions. The SLR requirements of banks (currently at 23%) as well as the stable sovereign credit risk ensure there is no dearth of buyers at the auctions where these securities are sold. However, if the base is widened among retail or individual investors, there would be a deeper and widespread market for G-Secs. The SLR requirements of banks could be reduced, freeing up that much of funds towards loans to industry.
One way to popularize G-Secs among the retail/individual investors is to make it available as an easy-to-understand, investible product, like deposits, through banks and post offices. Prior to an auction, the RBI notifies, on behalf of the government, banks and other institutions for investments from their book, i.e., investible funds.
Similarly, banks can make G-Secs available to their customers, through notices put up at their branches or on their websites so that people can put in their bids. The lot sizes for putting in the bids can be small since the aggregate of those bids is likely to be a reasonably large quantum.
What is being discussed here is nothing exotic; the website of a large private sector bank states that “ABC Bank offers facility of non-competitive bidding for dated government securities, through which customers can buy government securities directly from the