)
The Reserve Bank of India’s (RBI) proposal to allow non-competitive bidding facility in treasury bills to individuals needs a lot more work, say observers, as liquidity in the market continues to be an issue. Currently, the bidding facility available to retail investors is applicable only to auctions of dated securities.
The participation of retail has been lower in sovereign securities. RBI and the government have been working to promote it. Retail 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.
“A robust working mechanism will be required to provide liquidity to individual investors. Investors do not get a yield benefit by investing in these sovereign instruments. They look for capital gains. Capital gains 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 its annual report issued last week, said it would 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 (g-secs) on stock exchanges. “Investments in treasury bills require an SGL account. People are still not clear if individuals can open one. RBI says it will enable seamless movement of securities from SGL to demat but the mechanism is currently not in place. Before expecting retail investors to start investing in treasury bills, there is a lot more to be done to build infrastructure,” said Ajay Manglunia, senior vice-president (fixed income), Edelweiss Securities.
In the annual report, RBI 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 put in place a more predictable framework on the size and scope of investments in g-secs by foreign portfolio investors, taking into account the risks and benefits associated with such flows into the debt market.
