RBI's Retail Direct Scheme in G-Secs

Economic Affairs Investment Models

14-Jul-21

Context: Recently, the Reserve Bank of India (RBI) had announced the ‘RBI Retail Direct’ scheme under which retail investors will be allowed to open retail direct gilt accounts (RDG) directly with the central bank.
Background

In February 2021 RBI proposed to allow retail investors to open gilt accounts with the central bank to invest in Government securities (G-secs) directly.

About the Scheme

It is a one-stop solution to facilitate investment in Government Securities by individual investors.
With this RBI seeks to democratize the ownership of government debt securities beyond banks and managers of pooled resources such as mutual funds.

Key highlights of the ‘RBI Retail Direct’ scheme are:

Retail investors (individuals) will have the facility to open and maintain the ‘Retail Direct Gilt Account’ (RDG Account) with RBI.
RDG Account can be opened through an ‘Online portal’ provided for the purpose of the scheme.

The ‘Online portal’ will also give the registered users the following facilities:

Access to primary issuance of Government securities
Access to NDS-OM

The scheme allows that the retail investors can buy and sell Treasury Bills, G-Secs, Sovereign Gold Bonds and State Development Loans.

The participation and allotment of securities will be as per the non-competitive scheme for participation in primary auction of government securities and procedural guidelines for SGB issuance.
The scheme allows that the retail investors can buy and sell Treasury Bills, G-Secs, Sovereign Gold Bonds and State Development Loans.

The participation and allotment of securities will be as per the non-competitive scheme for participation in primary auction of government securities and procedural guidelines for SGB issuance.
Significance of RBI Retail Direct Scheme

It is aimed at improving ease of access by retail investors through online access to the government securities market i.e. both primary and secondary.
The scheme allows that an investor would be able to bid in G-Secs auctions and buy them in the secondary market as well.

Services offered under RBI Retail Direct Scheme

Financial Statement: The link provides transaction history and the balance position of securities holdings in the Retail Direct Gilt Account.

Provision for nominations: The investors can fill up and upload the nomination form in the appropriate format, which must be signed.

A maximum of two nominations is allowed.

Pledge/Lien: The Securities held in the RDG Account will be available for pledge/lien.

Gift Transactions: ‘Retail Direct Investors’ will have an online facility to gift government securities to other Retail Direct Investors.

Grievance redressal: Any query or grievances related to ‘Retail Direct’ Scheme can be raised on the portal which will be handled/resolved by Public Debt Office (PDO) Mumbai, RBI.
Additional Information

Retail Investor is a non-professional investor who buys and sells securities or funds that contain a basket of securities such as mutual funds and Exchange Traded Funds (ETFs).
A Gilt Account can be compared with a bank account, except that the account is debited or credited with treasury bills or government securities instead of money.

Government Security

A G-Sec is a tradable instrument issued by the Central Government or the State Governments.
It acknowledges the Government’s debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year- presently issued in three tenors, namely, 91 day, 182 day and 364 day) or long term (usually called Government bonds or dated securities with original maturity of one year or more).
In India, the Central Government issues both treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs).

G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.