Mumbai: Reserve Bank governor Shaktikanta Das on Friday said there is no way the move to allow small investors to directly enter government bonds market will starve banks of their deposits —their cheapest source of funds — saying the size of the pie is big enough to be pooled.
RBI, tasked with managing a whopping Rs 12 lakh crore of government borrowing next fiscal, in its bid to widen the investor base for government bonds, has made a major policy shift by deciding to allow small investors direct entry into this market to help deepen the financial markets in general and gilt market in particular.
I don't feel that it (allowing retail investors direct entry into the gilt market) will in any manner cut into bank deposits. I think the size of the pie is too large to support, governor Das told reporters during the customary post-policy presser.
The move makes India the first Asian country to allow directly entry of small investors in government debt market, while the US and Brazil allow indirect entry, Das said.
As GDP grows and as the economy comes back to a higher growth trajectory, total volume of savings and deposits naturally expands. We feel that it will not undermine the flow of deposits to banks and mutual funds. It is one more avenue which is made available though a much easier process, he noted. Moreover, even though small savings rates offer much higher rates than bank deposits, bank deposits have grown 11.3 per cent so far this year, the governor argued.
In effect RBI has opened a long, endless tap for the government to borrow from --and this will be under direct the watch of RBI. Currently, RBI allows small investors to buy gilts via the Gobid platform on BSE and NSE but this has not gained any traction. This is the second major step that RBI is taking to encourage retail investors to enter the gilt market. Under the new plan, all an investor needs to do is to open a gilt securities account with the RBI is all what it said, as details of the facility will be issued separately.