RBI woos banks with extra commission to make them sell inflation-linked bonds

Written by fe Bureau | Mumbai | Updated: Mar 15 2014, 21:22pm hrs
Reserve Bank of IndiaThe RBI introduced consumer price inflation-linked government bonds to the general public in November.
Faced with tepid response from banks to push consumer price inflation-linked bonds in the retail market, the Reserve Bank of India has now announced additional incentive to the banks.

Banks that are able to achieve a subscription of Rs 100 crore for such bonds by the end of March will be eligible to get an additional commission of 0.5% on the entire subscription amount, the central bank said in a release on Friday.

At present the government pays a handling commission of 1% to banks.

The RBI introduced CPI-linked government bonds to the general public in November and asked banks to distribute the same through their branches. 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%.

The CPI inflation with a three-month lag would be used for interest calculations. For instance, the CPI inflation of September will be the reference CPI inflation for December.

The CPI inflation was 8.1% in February, according to latest government data.

Retail investors can buy these securities from banks for a minimum investment of rs 5000, the central bank said. The maximum investment will be capped at Rs 5,00,000.