RBI RD and IOS

 

RBI Retail Direct Scheme

 

Brief: Hon’ble Prime Minister Narendra Modi has virtually launched Reserve Bank of India’s online portal RBI Retail Direct Scheme (RBI RD) (https://rbiretaildirect.org.in) on 12th November 2021. Through this portal, retail investors can invest in government securities (g-sec) directly. So far, retail investors were investing in g-sec via  gilt mutual funds/ g-sec dealers in case of primary issuance and trading in BSE/NSE/Negotiated Dealing System (NDS-OM) in respect of securities listed in the secondary market. With the availability of the above portal, individual investors can open an account with RBI (called Retail Direct Gilt account or RDG) for participating in primary auction of g-sec as well as buy and sell g-sec in NSD-OM. The list of  g-sec include Treasury Bills, dated securities, Sovereign Gold Bonds (SGB) and State Development Loans (SDL). There is no need to open a separate demat account with any DP and the existing savings bank account with a bank is sufficient to complete the transactions in the portal, using internet banking or Unified Payment Interface (UPI). Investor services offered  include account opening, carrying out transactions, statement of transactions/balance, nomination facility, pledge or lien of securities and gift transactions. No fees is contemplated for any of the facilities provided under the scheme.

 

AIM: According to RBI, the scheme, which places India in a list of select few countries offering such a facility, intends to provide a safe, simple, direct and secured platform to retail investors investing/trading in g-sec. The aim of the portal is two fold. To make it easier for individuals to invest/trade through an exclusive portal and widen the investor base in g-sec, which is dominated by institutional investors.

 

Investment Norms: In this regard, as per current guidelines, retail investors (meaning individuals either single or jointly) are allowed to invest up to 5% of notified amount for auction in respect of a specific g-sec issued (T Bills, Dated securities and SDL). The minimum amount for subscription is fixed at Rs.10,000,(1 gm equivalent for SGB) while the maximum is kept at Rs.2 cr. for CG/TB and 1% for SG. The individual participates through non-competitive bid process and the bid amount he has to pay is discovered from the weighted average yield/price determined in the competitive bid reserved for non-retail investors. 

 

PORTAL Friendliness: I visited the online portal. It educates an ordinary investor through three sub headings “about”, “FAQs”, “tour” sections. Even a person, who has not invested in g-sec, can gain some knowledge by going through these sections. It also provides current/past events in the “news” section. The home page displays activities undertaken with prompts available for opening RBI RD account, “auction bidding” (primary issuances) and “trading”(secondary market purchase and sale). Opening of RBI RD involves two processes. One is registration and the second is completing KYC formalities. To register, you need to type your PAN, e-mail and mobile phone number and follow instructions for completion. After this is complete, KYC formalities need uploading of the following file/folders: PAN Image, AADHAAR in ‘xml’ or ‘zip’ format, specimen signature image, scan image of cancelled cheque, etc. Login credentials are sent to your e-mail, which can be used for future logins. You may have to resort to off-line KYC, if your PAN data is not available in the data with the portal. RBI may think of introducing message like “your registration is complete; login credentials sent to your e-mail”, when the registration is completed successfully. Similarly messages like “If CKYC is failed please opt for off-line KYC” can be displayed in the same screen for easy understanding of the next steps.  Instead of uploading AADHAAR file only thro xml/zip formats, pdf format can also be permitted, which is the basic scan file available. If the portal is able to track PAN details, CKYC can be enabled, then off-line formalities, which involve human intervention at RBI end to verify the details, can be avoided. On the whole, I admit, that the online portal is user friendly.

 

Factors to consider: The initiative is laudable as borrowings through g-sec by the central and state governments forms a significant portion of money raised through debt instruments in the country and it is in order that individuals are facilitated to participate in large numbers. However the individuals should do well remember the following facts, strengths and constraints associated with g-sec, before investing. 

 

i) Fact: 

The interest, payable half yearly, is taxable like any other debt instrument and attracts capital gains at10%, if it is sold after one year.

ii) Strength: 

Both principal and interest are risk free as they are sovereign securities. They assure anticipated returns, if held till maturity.

iii) Constraints:

Though liquidity is assured, except the benchmark dated g-sec (10 years), the g-sec are generally illiquid, especially if the offer size for buy/sell is in odd lots by the retail investor. This may result in sale of the relevant g-sec below market value. Primary Dealers and institutional investors should be persuaded by RBI to actively participate in the odd lot (retail) market as well, as that only will ensure orderly development of secondary market for g-sec, (The securities are generally held to maturity by major investors like insurance and pension funds). 

Success Determinant: The portal provides the ideal platform for thousands of investors to open their accounts for subscribing to the primary issues of g-sec. However, the success of making them actively participate in trading in the secondary market depends on making the g-sec market more liquid and in popularising odd lot trading among non-retail investors.

V.Viswanathan

13th November 2021.