RBI Opens Government Bond Markets to Retail Investors

The Retail Direct scheme offers retail investors a new avenue for directly investing in the securities issued by the Union government and the state governments.

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New Delhi: Prime Minister Narendra Modi on Friday launched two customer-centric schemes with a view to strengthen financial inclusion by ensuring participation of small retail investors in the government securities market as well as improving the grievance redressal mechanism.

The launch of these two schemes – Reserve Bank’s Retail Direct Scheme and Integrated Ombudsman Scheme – will expand investment opportunities in the country and ensure easier access to capital markets with simple and secure mechanisms, he said, while launching the schemes through video conferencing.

At the same time, the Retail Direct Scheme will also help in garnering funds for development works, the prime minister said.

The scheme offers retail investors a new avenue for directly investing in the securities issued by the Union government and the state governments. The investors will be able to easily open and maintain their government securities accounts online with the RBI for free.

Prime Minister Modi said that the retail direct scheme has given small investors in the country a simple and safe medium of investment in government securities. Similarly, “One Nation, One Ombudsman” system has taken shape in the banking sector with the Integrated Ombudsman Scheme today, he said.

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The Integrated Ombudsman Scheme seeks to merge other ombudsman schemes making it a “One Nation, One Ombudsman” system for the entire financial sector.

The announcement comes even as yields on India’s benchmark 10-year government bonds have risen in the past five months. A rising yield, economically, usually indicates that the demand for the bonds is decreasing.

According to Bloomberg’s analysis, the move comes at a time when rising inflation adds pressure on the RBI to lift rates. Tighter monetary policy is likely to weaken the demand for bonds, making it challenging for the government to execute its near-record borrowing programme.

The prime minister further said that the Integrated Ombudsman Scheme will go a long way in the direction of strengthening the grievance redressal system.

“Similarly, the Retail Direct Scheme will give strength to the inclusion of everyone in the economy as it will bring in the middle class, employees, small businessmen and senior citizens with their small savings directly and securely in government securities. As government securities have the provision of guaranteed settlement, this gives assurance of safety to the small investor,” he said.

Stressing that a strong banking system is essential for an economy, Modi said the government has taken several measures to strengthen the financial health of the public sector banks.

Highlighting that banking sector reforms ranging from inclusion in the financial sector to technological integration have been carried out in the past few years, he said, we have seen their strength in this difficult time of COVID. The decisions of the Reserve Bank of India also helped in increasing the impact of the big decisions that the government has taken in recent times.

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Finance minister Nirmala Sitharaman said the Retail Direct Scheme will facilitate retail participation, deepen the bond market and allow for fair market-determined rates for all, across the yield curve.

“The retail participation has been hesitant all these years, because of the cost involved and because of the traditional intermediary system which has prevailed. Now this will probably bring in a direct cost-free, convenience-driven approach, and also build confidence in the retail participation in the government securities,” she said.

(With inputs from PTI)