19-02-2021 | 14:30 PM
RBI proposed Direct Access to G-Sec Market for Retail Investors
Context
Recently, the Reserve Bank of India (RBI) has proposed to allow retail investors to open gilt accounts with the central bank to invest in Government securities (G-secs) directly without the help of intermediaries.
Key Highlights
Now retail investors will get online access to the government securities market – both primary and secondary – directly through the Reserve Bank without the help of intermediaries.
The primary market is where securities are created, while the secondary market is where those securities are traded by investors.
Retail investors will be allowed to open gilt investment accounts directly with RBI. The account will be called RBI retail direct.
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).
Gilt Account can be compared with a bank account, except that the gilt account is debited or credited with treasury bills or government securities instead of money.
The direct participation of retail investors in the bidding process will be enabled through the core banking solution of Reserve Bank of India- E-kuber.
About Government securities (G-secs)
Government securities are tradable instruments issued by the Central Government or the State Governments.
G-Sec 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).
G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments
G- Sec prices fluctuate sharply in the secondary markets and factors affecting their prices are:
Demand and supply of the securities.
Changes in interest rates in the economy and other macro-economic factors, such as, liquidity and inflation.
Developments in other markets like money, foreign exchange, credit and capital markets.
Developments in international bond markets, specifically the US Treasuries.
Policy actions by RBI like change in repo rates, cash-reserve ratio and open-market operations.
