Also considers allowing buying of G-Secs through demat accounts
In its continuing bid to make capital markets more attractive to retail investors, India is considering a number of steps to diversify participation in government-issued securities, including doubling the non-competitive bidding limit and allowing buying of such securities through demat accounts.
According to a government source, the finance ministry is in talks with RBI and Sebi, and last week, economic affairs secretary Arvind Mayaram met Sebi officials. In the course of discussions, these two proposals were talked about.
Non-competitive bidding is essentially a reserved window for non-institutional investors to buy into a bonds issue. Currently, the government caps non-competitive bidding limits for securities issued by it at 5%.
In the upcoming issue of inflation-indexed bonds the cap will be raised to 10%, RBI deputy governor HR Khan had said last week. This could just be the start as taking a cue from IIBs, officials are considering raising the cap to 10% across all future government bond issues, the source said, on condition of anonymity.
?While working out the finer details of the upcoming IIB issue, it seemed prudent to also discuss if some of the changes we made could be put in place for other bonds as well,? the source said. There is no specific timeline as yet on when such a proposal may be implemented, but it could well be in the first half of the fiscal year.
Another proposal being considered is allowing demat account holders to buy government securities. Currently, those with demat account can only trade in securities listed on various exchanges such as stocks and commodities, and certain infrastructure and corporate bonds, a debt fund manager from Quantum Asset Management told FE. Buying government securities, which are unlisted, involves retail investors to go through a primary dealer or other institutional investors.
If this proposal is pushed through, it will enable more than 20 million people who hold demat accounts to invest into R5.79 lakh crore that India plans to borrow in fiscal year 2013/14. This proposal could also be put in place before October this year.
?If this proposal is implemented, it will not affect the government’s borrowing ability. It may, however, have an impact on the liquidity of the securities, as prices will push up and yields will come down due to 5% less bonds being available to the big institutional investors,? Saugata Bhattacharya, an economist with Axis Bank in Mumbai, told FE.
India has, in the past, taken a number of measures to move the country’s substantial middle-class population away from traditional forms of savings like gold and property, as well as dubious investments like fly-by-night ?get-rich? schemes, and into more liquid forms of investments, including mutual funds, stock and bond markets.
Last year, it launched the Rajiv Gandhi Equity Savings Scheme, to bring millions of first-time investors into stocks by offering a tax incentives of as much as 50% of the total investment in some cases, if certain conditions were met. This year, the upcoming issue of IIBs will be aimed primarily at retail investors.