Mumbai: The Governor of the Bank of India (RBI) Shaktikanta Das on Tuesday talked about the steps to deepen retail participation even when he signaled preparations to normalize the liquidity pumped into Pandemi markets.
“When markets settle on regular timings and operating function and liquidity normalize, the RBI will also carry out fine adjustment operations from time to time as needed to manage unexpected liquidity flows and once so that liquid conditions in the system evolved in a balanced.
And distributed evenly.
, “Das said.
He delivered the keynote address at the annual conference organized by fixed income & money market derivative associations (FIMMDA) and the Association of Indian Primary Dealers (PDAI).
DAS also said that the RBI will work with the main dealer to popularize the strip – trade separately from the interest and principal of securities.
This is a system that will enable the conversion of government securities into zero-coupon bonds where lump sum is paid at maturity.
This will be one step by the RBI to develop the retail market for government securities.
Under the strip mechanism, if there is a long-term bond for, say, 10 years, the main dealer can sell the principal to one investor and interest payments to other investors.
The advantage is that an investor who is looking for short-term government bonds can buy coupon payments (interests) and long-term investors can only buy principals.
Zero-coupon bonds are popular with investors who save for long-term plans or purposes such as retirement because they don’t need to worry about reinvesting interest.
Das said that the intention behind the strip introduction was to attract retail investors.
Bond dealers say that it has not taken off in retail.
“In the future, it will be desirable for reserve banks and market agencies such as FimMDA and PDI to work together to popularize the next strip instrument,” said the watershed.
He added that in addition to strips, the RBI had worked to promote retail participation by introducing niche products such as sovereign gold bonds and savings bonds.
Other steps to promote retail include allowing non-competitive offers in major auctions and allowing trade with many odds.
The central bank has also opened the bond market infrastructure by connecting it with an exchange trading system.