Treasurers believe there although retail participation in SDLs is a welcome move, it wont have much effect unless these instruments pay higher returns than standard savings products.
In order to broaden the scope on the sovereign debt market, the Reserve Bank of India (RBI) is focusing on increasing retail participation in Indian debt markets. The regulator asked stock exchanges to act as facilitators or aggregators of bids of their stockbrokers or other retail participants. Furthermore, these bids are to be submitted as a single consolidated bid under the non-competitive segment of the primary auctions of sovereign bonds and state development loans (SDLs).
Treasurers believe there although retail participation in SDLs is a welcome move, it wont have much effect unless these instruments pay higher returns than standard savings products. “It is a welcome move and we may see higher issuances, but retail investors will not participate unless SDLs provide higher returns than fixed deposits or PPF schemes,” said Kamal Mahajan, treasurer, Bank of Baroda. SDL yields have averaged at 8.14% in April, 70 basis points (bps) higher than the average government bond yield.
According to Care Ratings, there are Rs 29.5 lakh crore worth SDLs outstanding as on April 2019 while outstanding government debt amounted to Rs 57 lakh crore. The RBI in a statement said that the above measure will be implemented in consultation with respective state governments.