India looking to boost govt securities retailing

Tuesday, 03 September 2002, 07:00 Hrs   |    1 Comments
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NEW DELHI: India is studying ways to boost retail participation in primary auctions of government securities.

An official of the Reserve Bank of India (RBI), the country's central bank, admitted that an earlier scheme for mid-segment investors had not elicited the expected response so far. A new scheme for smaller investors with a lower starting slab of 10,000 is expected to draw a better response.

In January the apex bank had introduced the non-competitive bidding scheme to encourage retail participation in primary auctions, particularly by the mid-segment investors like urban cooperative banks and trusts, in the primary government securities market.

The scheme provided for allocation of up to five percent of the notified amount of securities at the weighted average rate of accepted bids.

Now the Reserve Bank of India (RBI) is keen to encourage smaller investors too to participate in the scheme.

"Making the scheme operational for screen-based order-driven trading on the stock exchanges to facilitate retailing is under active consideration," said Mohd Tahir, executive director of RBI, at a seminar organized by the Associated Chambers of Commerce and Industry (Assocham).

A committee of stock exchanges with representatives from the RBI has been set up to study how the new scheme can be made operational. At the first meeting of the committee, the Securities and Exchange Board of India (SEBI) had also participated in its capacity as the regulatory authority.

The scheme, to be made operational soon, "will help widen the investor base," said Tahir.

In July, the central bank had introduced bonds with call/put (buy/sell) options. The bank is now studying the creation and development of a Separate Trading for Registered Interest and Principal of Securities (Strips) market.

Under this trading mechanism, separate tradable securities for principal and coupon payments will be issued.

"All the securities will have the characteristic of a zero coupon bond," said Tahir.

In addition to providing more flexibility in managing interest rate risk, these securities would also help banks address the asset-liability mismatch problem, he said.

Source: IANS
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