Six months after inflation indexed bonds (IIB) were launched, RBI will make them available to the retail investors from the second half of December.
RBI will launch IIBs linked to consumer price index inflation to individuals at a minimum fixed interest rate of 1.5%, the central bank said in a release on Friday.
Also called CPI inflation-linked national savings securities, these 10-year bonds will pay interest rate linked to the combined CPI inflation over and above the minimum rate of 1.5%.
“Interest rate would comprise two parts — fixed rate (1.5%) and inflation rate based on CPI and the same will be compounded in the principal on half-yearly basis and paid at the time of maturity,” the RBI said.
Bankers said the bonds will get a positive response but volumes may take time to pick up given the cap on maximum investment.
“We will have to see how banks can track the R5,00,000 investment limit of an individual,” said Ashish Parthasarthy, head of treasury at HDFC Bank.
“It will take time for volumes to pick up because of this limit,” he added.
At present, IIBs in the institutional market are linked to the wholesale price index inflation and every IIB auction has seen a very tepid response from retail investors given that the CPI inflation is far higher than WPI. The 1.44%, 2023 IIB that was first issued in June, is currently trading around 3.63%. In the last four auctions of the bond, there were no bids in the non-competitive segment reserved for retail investors.
For retail IIBs, the CPI inflation with a three-month lag would be used for interest calculations, RBI said. For instance, CPI inflation of September will be the reference for CPI inflation of December. The retail inflation in September was 9.84% and it rose to 10.09% in October, according to latest government data.
Retail investors can buy these securities from banks for a minimum investment of R5000, the central bank said. The maximum investment will be capped at R5,00,000.
Investors will also be able to redeem the securities after a lock-in period of three years, the RBI said. For senior citizens, this lock-in period is