Retail direct, integrated ombudsman scheme will make country stronger: Modi

Through retail direct, an individual investor can directly invest in G-secs, in a system facilitated by the RBI, without any fees, and without the need for a fund manager

Prime Minister Narendra Modi on Friday launched the Reserve Bank of India’s (RBI's) ‘retail direct’ platform and ‘integrated ombudsman scheme’. While doing so, he said this will ensure safety of the common man’s investment, coupled with stable returns.

The Prime Minister also added that this will make funds available for the government to invest in infrastructure and other needs of the country. 

Through a retail direct scheme, an individual investor can directly invest in government securities (G-sec) without any fees, and without the need for a fund manager.

Since they are government-guaranteed and the highest asset class that a sovereign can offer, the investments are secure. While there will be no credit risk, there will be interest rate risk, which investors have to keep in mind.

“So far, our middle class and senior citizens had to go to banks, insurance firms or mutual funds to invest in government securities. Now, they can invest directly and safely from the convenience of their homes. This is the best way to invest. The ease of investment and safety will develop the wealth of the nation,” the Prime Minister said, adding that the substantial benefit accrued will boost the common man’s confidence in financial savings. 

Under the scheme, retail individual investors can open a retail direct gilt (RDG) account with the RBI using an online portal and invest in primary as well as secondary market government securities market. 

While the minimum investment is Rs 10,000, the maximum an investor can invest is Rs 2 crore per security. There will be no income tax benefits attached to this investment.

Payments for transactions can be done using a savings bank account through internet banking or Unified Payments Interface (UPI). While there will be no charges that will be levied by the RBI, payments made through internet banking will attract normal transaction charges. Payment through UPI will have no charges. 

RBI Governor Shaktikanta Das said, “The retail direct scheme seeks to widen the investor base for government securities by creating an ecosystem whereby retail investors can easily participate in the government securities market, which is so far dominated by institutional investors. By doing so, India is setting an example in democratisation of the government securities market.”

The idea was first floated by the RBI in the February 2021 monetary policy. It potentially challenges, or perhaps complements, debt mutual funds and bank savings.

In the February policy, the RBI governor had described the initiative as a “major structural reform”, and experts had agreed. In fact, India will only be the third nation in the world, after the United States and Brazil, where retail participants can take direct exposure to the government bond market.

In every government security, there is a guaranteed settlement. Small investors will get assurance. People will get good returns, and the government will get the required funds to develop the country.

“This is Atmanirbhar Bharat. Here, the citizens and the government work together for a common goal,” the Prime Minister said. 

Experts do not expect the RBI retail direct scheme to take off in a big way. What this will do is provide an alternative investment avenue to investors, especially high net worth individuals (HNIs) and pensioners, who are looking for stable returns over a long period of time, they felt.

The move is aimed at diversifying the government securities market, which is dominated by institutional investors such as banks, insurance companies, mutual funds and others. While foreign portfolio investors were allowed to invest in G-secs, their holding is around 2-3 per cent in the overall market.

The integrated ombudsman scheme has amalgamated the three existing ombudsman schemes — namely banking ombudsman, ombudsman for non-banking financial companies (NBFCs), and ombudsman for digital transactions — into one. It also includes under its ambit non-scheduled primary co-operative banks with a deposit size of Rs 50 crore and above. 

The PM said the strength of a democracy lies in how easy and quick the grievance redressal mechanism is. In that aspect, the RBI’s integrated ombudsman scheme is a major step.

Das said the existing ombudsman schemes are being integrated into a single scheme, which will offer the benefit of a single platform to customers for getting speedy resolution of their grievances.

“A common man will not have to run around to lodge his complaints. No matter what the nature of the financial grievance, the complainant can lodge it online, and track it online for a time-bound resolution process,” the Prime Minister said.

This one nation-one ombudsman scheme will directly help 440 million loan accounts and 2.2 billion deposit account holders, he said. 

This will not only help prevent fraud, but will also improve digital penetration and customer confidence in the banking system will increase. 

“All RBI-regulated entities will be covered by this. Any complaint by account holders can be resolved through this one platform. In case of online fraud or cyber fraud, among others, the RBI will massively use artificial intelligence,” Modi said.