Search the Internet          Tips  Sites: Finance, Investment

RBI for more retail players in debt market

Individual and non-institutional investors' participation in the government debt market is expected to rise to 15-20 per cent from 10 per cent currently, a top Reserve Bank of India official said on Friday.

Initiatives including screen-based trading, which will make trade more transparent, will bring about the increase, said Usha Thorat, head of the RBI's Internal Debt Management Cell, said at a financial services convention.

"Most of the retail participation in government securities is through mutual funds which hold around 10 per cent of government debt," she said.

"Banks, instead of looking at retailing of government bonds as an instrument which will act as a competitor for their deposits, should look at retailing these securities as a source of fee-based income," she said.

"Then one can certainly look at the market size enlarging at least in the near term to 15 per cent and going beyond to 20 per cent," she said.

Banks are the largest investors in Indian government securities, holding around 65 per cent of the total stock estimated at just over Rs 5.5 trillion. Banks also account for nearly 60 per cent of the secondary market trade.

Individual investors, while very active in the equity market, are barely active in the debt market because of lack of awareness and access.

Thorat said the soon-to-be operationalised screen-based negotiated dealing system and clearing body for the foreign exchange and debt markets will benefit individual investors.

She said on-line trade will widen the market and disseminate information quickly to banks and primary dealers, which in turn can pass on price information to their clients.

Once the clearing corporation is operationalised, individual and corporate clients will also be able to lend cash against government securities through the bank, in effect participating in the bond repurchase or repo market.

The central bank has also started allowing individual investors to participate in government bond auctions on a non-competitive basis, she said.

Tell us what you think of this report