DC Edit | Gilt' option for citizens

G-Secs are tradeable investment instruments issued by the Central or state governments and are the most risk-free sovereign-backed bonds

Update: 2021-02-09 01:59 GMT
Reserve Bank of India announced a slew of measures to maintain market stability. (PTI Photo)

The Reserve Bank of India, during its latest monetary policy review, proposed to allow retail investors to park their money in government securities (G-Secs) — also called “gilt bonds” — by opening gilt securities accounts or “retail direct”. This is one of a series of steps that the Reserve Bank has been taking since January 2002 to increase the participation of a larger number of people in the purchase of government securities.

G-Secs are tradeable investment instruments issued by the Central or state governments and are the most risk-free sovereign-backed bonds available in the country. These securities are available in both short-term and long-term tenures — ranging from three months to 30 years — with an annual yield starting from 3.37 per cent. Though commercial banks and asset management companies dominate the G-Secs market now, the RBI’s decision would provide a new risk-free investment option for retail investors.

This decision could also provide elbow room for the Central government to reduce its presence in the banking sector. A couple of years back, former RBI governor Yaga Venugopal Reddy had said that an “average citizen of India is most comfortable banking with PSU banks”. Sixty-five per cent of total deposits in the banking sector are with the public sector banks for the mere reason that they are owned by the government. If most risk-averse depositors could be persuaded to shift to the G-Secs, the government could go ahead with the denationalisation of banks at a faster pace.

However, there still remain a few challenges. Since G-Secs offer lower yields than fixed deposits, many people might not find it an attractive investment option. Banks’ fixed deposits and small saving schemes have become a safety net for vulnerable sections of society and unless the government creates a decent social security net, they cannot be wished away by any government without facing the consequences in election season.

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