The Reserve Bank of India (RBI)’s proposal to allow a non-competitive bidding facility in treasury bills (T-bills) to individuals might not help create much demand, as liquidity in the market continues to be an issue. RBI, in its annual report last week, said it had allowed the non-competitive bidding facility to individuals as well.
Currently, it is available to retail investors is applicable to only auctions of dated securities.
Participation of retail investors has been lower in sovereign securities. RBI and the government have been working together to promote it. These investors participate in these sovereign instruments mostly through the mutual fund route. Under non-competitive bidding, an investor agrees to buy a certain number of securities at the average price of the accepted competitive bids.
RBI, in consultation with all stakeholders, will also enable seamless movement of securities from the subsidiary general ledger (SGL) form to demat form and vice versa to promote trading of government securities on stock exchanges, said the annual report.
“Investments in treasury bills require an SGL account. People are still not clear if individuals can open SGL account. RBI will enable seamless movement of securities from SGL to demat but the mechanism is not in place. Before expecting retail investors to start investing in treasury bills, there is a lot more to be done to build infrastructure. People also need be educated about these things. If these things are in place, then it will facilitate investing,” said Ajay Manglunia, senior vice-president (fixed income), Edelweiss Securities.
The report also said to develop a more liquid government securities market, a scheme of market making in select semi-liquid securities by primary dealers will be implemented. Besides, RBI will work for a more predictable framework on the size and scope of investments in government securities by foreign portfolio investors, taking into account the risks and benefits associated with such flows into the debt market.
Currently, it is available to retail investors is applicable to only auctions of dated securities.
Participation of retail investors has been lower in sovereign securities. RBI and the government have been working together to promote it. These investors participate in these sovereign instruments mostly through the mutual fund route. Under non-competitive bidding, an investor agrees to buy a certain number of securities at the average price of the accepted competitive bids.
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“A very robust working mechanism will be required to provide liquidity to individual investors. If individuals are convinced that they will not be stuck buying sovereign papers, it will work. Investors do not get a yield benefit by investing in these sovereign instruments. They look for capital gains. Those get realised only when you exit, as a result of which a liquidity mechanism is critical,” said Killol Pandya, a senior debt fund manager at LIC Nomura Mutual Fund.
RBI, in consultation with all stakeholders, will also enable seamless movement of securities from the subsidiary general ledger (SGL) form to demat form and vice versa to promote trading of government securities on stock exchanges, said the annual report.
“Investments in treasury bills require an SGL account. People are still not clear if individuals can open SGL account. RBI will enable seamless movement of securities from SGL to demat but the mechanism is not in place. Before expecting retail investors to start investing in treasury bills, there is a lot more to be done to build infrastructure. People also need be educated about these things. If these things are in place, then it will facilitate investing,” said Ajay Manglunia, senior vice-president (fixed income), Edelweiss Securities.
The report also said to develop a more liquid government securities market, a scheme of market making in select semi-liquid securities by primary dealers will be implemented. Besides, RBI will work for a more predictable framework on the size and scope of investments in government securities by foreign portfolio investors, taking into account the risks and benefits associated with such flows into the debt market.