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RBI looks to add more zing to inflation-indexed bonds

Jan 10 2014, 19:53 IST
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Inflation-indexed bond is a product that offers retail investors relief from inflation.  PTI Inflation-indexed bond is a product that offers retail investors relief from inflation. PTI
SummaryInflation-indexed bond is a product that offers retail investors relief from inflation.

RBI deputy governor HR Khan said on Thursday that the government and the central bank are working on making the features of inflation-indexed bonds (IIB) more attractive to investors, and that it will include revision of individual investment limits. Charitable institutions, which are also eligible for subscription, may also be incentivised, he added.

IIB is a product that offers retail investors relief from inflation. The maturity period of IIB is 10 years and its interest is linked to the Consumer Price Index (CPI). It is attractive because it offers a fixed rate of 1.5% per year and a retail inflation-based variable rate. Interest is to be compounded half-yearly and paid at maturity.

Khan’s comments come even as the RBI had in December extended the date for issuance of IIBs from the earlier date of December 31 to March 31, 2014, owing to lukewarm response.

The issuance of the bonds was announced on November 29 by the RBI in consultation with the government.

“It (IIB) is a good product as it stands now. We expect the demand to pick up. But we are in discussion with the government, so some clarification will come. On existing features, some clarifications have been sought. However, there will be no change immediately,” Khan told reporters on the sidelines of a National Housing Bank event.

“We will come up with something. We had a meeting with bank chairmen this morning in Mumbai. All of them have committed. Issues of marketing, availability of forms, awareness campaign -- all these things are happening and bank chairmen have committed to take it forward,” he added.

The yearly investment limit in the product ranges from a minimum of Rs 5,000 to a maximum of R5 lakh per applicant. Besides charitable institutions, the other eligible subscribers include individuals, universities and Hindu Undivided Family.

RBI, which acts as the central depository issues and holds the securities in the form of Bonds Ledger Account. IIB’s distribution and sale is done through all public sector banks including SBI and its associate banks. Besides, investors can also approach private sector lenders such as ICICI Bank, HDFC Bank and Axis Bank, as well as the Stock Holding Corporation of India.

Debt-switch plan may be put off

RBI deputy governor HR Khan on Thursday said the R50,000- crore debt-switch programme is unlikely to happen this fiscal and may be postponed to the next financial year.

He said the debt-switch, when done,

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