Mumbai: The much-awaited direct retail investment in sovereign bonds may soon be a reality, if the government permits financial incentives as proposed by bond houses at a meeting held in New Delhi on Wednesday, said three people familiar with the matter.
The government seeks to create an additional set of investors in the sovereign bond market, which should check the rising borrowing cost for them, said one of the persons cited above. Retail participation could well serve the purpose.
Bond houses have proposed tax breaks for government bonds, which normally yield less than bank fixed deposits –– a key reason why retail investors do not invest directly. Financial incentives should increase the attractiveness of Gsecs on par with bank fixed deposits, dealers said.
There were around 15 bond houses or primary dealers, who met the finance ministry with a joint secretary Budget chairing the meeting on behalf of Public Debt Management Agency. It was a yearly event that takes place before every new financial year when the government kicks start borrowing plan. There were some eight proposals discussed in the meeting.
Bond houses or primary dealers suggested shorter maturity bonds which could again evince new investment interest. Some people sought a roadmap to increase FPI debt investment limit over a period of time, said one of the persons cited above. The government was keen to know about overseas investor response on Indian debt securities.
The government will sell Rs 6.06 lakh crore worth of sovereign securities compared with Rs 5.8 lakh crore in the current year. The RBI, the government’s market borrowing agent, is likely to publish the borrowing calendar this Friday.
The benchmark bond yield surged as much as 7.77% in February pulling prices down amid fear of fiscal slippages and muted demand. In a span of six months ending February, government bond yields surged about 100 basis points triggering jitters among debt market participants.