The Reserve Bank of India plans to shift the consumer price index inflation to price inflation indexed bonds after a year or so to attract retail participation once CPI data stabilises, the RBI said.
?New instruments when issued down the line in next year or so, once the CPI stabilises, we may move over,? said R Gandhi, the executive director at RBI, in a conference call with market participants.
RBI plans to issue IIBs exclusively to retail investors October onwards once it gains experience through issuance to institutional investors via auctions.
RBI will issue IIBs at a maiden auction on June 4 for R1,000-2,000 crore to institutional players. Retail investors can participate under the non-competitive bidding segment which would be 20% of the notified amount.
These IIBs will be linked to the wholesale price index inflation. Market participants were of the view that given the big divergence between WPI and CPI inflation, retail interest in IIBs would be limited if the bonds are linked to the WPI. In April, WPI inflation was 4.89% while CPI inflation was 9.39%.
RBI will issue detail guidelines for retail investment in the next few months, Gandhi said. RBI added it is looking into marketing and distribution of these bonds as well. Until the modalities are worked out, retail investors will have to go through brokers or banks to invest in IIBs.
However, a retail investor will need to have a demat account as the allotment of the bonds will be in dematerialised form. Further, no special dispensation on taxation is being given right now, the RBI said.
Banks, FIIs benefit IIBs will be considered as part of statutory liquidity ratio norm under which banks have to hold 23% of their deposits in government securities, RBI said.
L&T to raise R100 crore via inflation bonds
L&T will raise R100 cr through inflation linked capital-indexed non-convertible debentures. This is the first time an Indian corporate is offering inflation indexed returns to investors. The instrument will carry a tenure of 10 years with a real yield of 1.65% per annum. The principal will be adjusted with respect to the Wholesale Price Index over a trailing 12 month period with a 4 month lag.
Crisil has categorised the index as complex and rated it as ?Crisil AAA/Stable?.