RBI Retail Direct Scheme

Context: In order to increase retail participation in government securities, Prime Minister Narendra Modi will launch the ‘RBI Retail Direct Scheme’ for investors.

• With this Retail investors can open and maintain their government securities account (gilt accounts) with the Reserve Bank of India (RBI) free of cost.

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.
• Purpose: For improving ease of access by retail investors through online access to the government securities market – both primary and secondary - along with the facility to open their gilt securities account (‘Retail Direct’) with the RBI.
• In July, the central bank said investors will have access to bidding in primary auctions as well as the central bank’s trading platform for government securities called Negotiated Dealing System-Order Matching Segment, or NDS-OM.

About ‘RBI Retail Direct’ scheme

• It is a one-stop solution to facilitate investment in Government Securities by individual investors. 
• Under the scheme, 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 such as access to primary issuance of Government securities and access to NDS-OM. 
• NDS-OM means RBI’s screen based, anonymous electronic order matching system for trading in government securities in the secondary market.
• The launch comes as a move to open up India's sovereign bond market to individual buyers as it seeks to widen the investor base.

Current G-Sec Market

• The G-sec market is dominated by institutional investors which are large market actors such as banks, mutual funds and insurance companies.
• These entities trade in lot sizes of Rs 5 crore or more.
• So, there is no liquidity in the secondary market for small investors who would want to trade in smaller lot sizes.
• The primary market is where securities are created, while the secondary market is where those securities are traded by investors.
• There is no easy way for them to exit their investments. Thus, currently, direct G-secs trading is not popular among retail investors.

Significance

• Improved Ease of Access: It will make the process of G-sec trading smoother for small investors therefore it will raise retail participation in G-secs and will improve ease of access.
• Facilitate Government Borrowings: This measure together with relaxation in mandatory Hold To Maturity (securities that are purchased to be owned until maturity) provisions will facilitate smooth completion of the government borrowing programme in 2021-22.
• Financialise Domestic Savings: Allowing direct retail participation in the G-Sec market will promote financialisation of a vast pool of domestic savings and could be a game-changer in India’s investment market.

Other Measures Taken to Increase Retail Investment in Government Securities:
Introduction of non-competitive bidding in primary auctions.

• Non-competitive bidding means the bidder would be able to participate in the auctions of dated government securities without having to quote the yield or price in the bid.
• Stock exchanges to act as aggregators and facilitators of retail bids.
• Allowing a specific retail segment in the secondary market.

Apart from above another important initiative should be taken namely

RBI Integrated Ombudsman Scheme

• It aims to further improve the grievance redress mechanism for resolving customer complaints against entities regulated by RBI.
• The central theme of the scheme is based on ‘One Nation-One Ombudsman’ with one portal, one email and one address for the customers to lodge their complaints.
• There will be a single point of reference for customers to file their complaints, submit the documents, track status and provide feedback.
• A multi-lingual toll-free number will provide all relevant information on grievance redress and assistance for filing complaints.

Additional Information
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.
• Gilt-edged securities are high-grade investment bonds offered by governments and large corporations as a means of borrowing funds.