Reserve Bank of India Deputy Governor H.R. Khan on Wednesday stressed the need for bringing in more retail investors in the Government securities market.
According to Khan, “On the face of it, it looks very odd that the Government promotes instruments of corporates and gives tax concession but does not extend the same treatment to its own instrument.”
“This is being looked at from the Government side,” he said at a capital markets seminar on retail investors organised by The Associated Chambers of Commerce and Industry of India.
The Government securities market is dominated by institutional players. Gilt funds have a dividend distribution tax of 12.5 per cent. Investments in equity mutual funds are neither subject to dividend distribution tax nor to short-term capital gains tax whereas investments in debt mutual funds are subject to both.
Khan also said that the RBI is working on reducing the HTM (held-to-maturity) limit of banks in a non-disruptive manner in the next two to three years. Government securities in the HTM category are not traded. This will lead to increased trading, and the market will have more active points on the yield curve.
Khan said the RBI is considering carve-out from the statutory liquidity ratio for liquidity coverage rules under Basel III.
On liquidity issues, the Deputy Governor said, “If liquidity deficit persists, the RBI will resort to open market operations (buying Government securities through an auction to infuse liquidity in the banking system).”