The Hindu Business Line : RBI to promote retail trade in g-secs

The Reserve Bank of India hopes to get more retail investors into the government securities market, an area that is dominated by institutional participants.

The RBI, aware that investors of all hues are flocking to other asset classes such as equities, intends to encourage more retail activity in the g-sec space, Mr B. Mahapatra, Regional Director (ER), RBI, said here on Thursday.The apex bank's view is in line with that of the securities market regulator, SEBI. The latter too has expressed similar opinion on the near-absence of retail participation in g-secs.

Retail players are often hindered by the lack of trading outlets - a situation that has made life considerably easier for those who invest in the stock market, at least in the metros. The RBI is also conscious of the fact that retail investors are increasingly approaching the market through mutual funds, rather than venture into it on their own. As a result, their transaction in g-secs is negligible, the trading window allowed to them notwithstanding.

Mr Mahapatra also pointed out that state government bonds are not quite liquid at the moment, a trend that the banking regulator wants to change for the better. He was addressing members of the Merchants' Chamber of Commerce here on Thursday.

New strategies

Among the several new strategies that have been formed is an NDS order matching system, which has been lately extended to mutual funds and certain other players. Further, primary dealers have been allowed to participate in other activities, subject to conditions.

The banking system, it is felt, is aware that rising asset prices amidst a hardening of interest rates may worsen households' balance sheets and their indebtedness. In India, there were a few potential downside risks. Sustaining manufacturing growth, for instance, would depend on bridging the gap in physical and social infrastructure. Also, the market needed to be aware of a likely strain on credit quality.

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