Under this centralised system, customers will have a single point of reference to file their complaints, submit documents, track status and provide feedback
On November 12, 2021, Prime Minister Narendra Modi launched two innovative customer-centric initiatives of Reserve Bank of India — Retail Direct Scheme (RB-RDS) and the Reserve Bank-Integrated Ombudsman Scheme (RB-IOS).
The RDS is intended to give retail investors - mostly the middle class, employees, small businessmen and senior citizens - an option of 'directly' investing in their hard-earned savings/surpluses in Government securities, making capital markets 'easily accessible' and ensuring that the investment is ‘more secure’. The RB-IOS is aimed at improving customer grievance redress mechanism.
What are the schemes? How do these propose to achieve the stated objective? What are the chances of success?
The RB-RDS is a 'one-stop' solution to facilitate investment by individual investors in Securities issued by the Centre such as treasury bills, dated securities, sovereign gold bonds and securities issued by State governments.Under the scheme, a retail investor can open and maintain the 'Retail Direct Gilt Account' (RDG Account) with RBI. It can be opened through an 'Online portal' provided for the purpose. He/she needs to have a Rupee savings bank account maintained in India, PAN (Permanent Account Number) issued by the income tax department, any officially valid document to meet KYC norms and Valid email id and registered mobile number.
The 'Online portal' will enable the retail investor access primary issuance of Government securities as also invest in the secondary market by accessing the RBI's trading platform named Negotiated Dealing System-Order Matching Segment, or NDS-OM. NDS-OM is a screen based, anonymous electronic order matching system for trading in government securities in the secondary market.Investors will receive interest/maturity proceeds in their bank accounts linked to the RDG account. They will not have to pay any fee for availing facilities on the portal.
With these basics at the backdrop, let us evaluate.
All along, the Government securities or G-sec market was largely inaccessible to retail investors even as the market was dominated by institutional investors such as banks, insurance companies, mutual funds, etc. with lot sizes of Rs 5 crores and higher.Earlier, regulators tried to popularize G-secs among the former through innovations such as NSE (National Stock Exchange) GoBid app or retail debt market (RDM) segment of the exchange. But these did not have the desired result due to lack of liquidity.
Accordingly, initiatives such as introducing non-competitive bidding in primary auctions, permitting bourses to act as aggregators or facilitators for retail investors and allowing odd-lot segment in NDS-OM secondary market have been taken in the past. These changes/modifications aimed at carving out a special window within the existing arrangements have not helped much.
This prompted the RBI to consider a dedicated online platform for retail investors access the G-sec market — both primary and secondary — along with the facility to open their gilt securities account with the RBI. Accordingly, the Governor Shaktikanta Das announced the 'Retail Direct' facility February 2021 monetary policy review.
What Modi has announced now is essentially the same scheme.
It gives millions of small investors located anywhere including in the remotest corner of the country an opportunity to 'directly' invest (the minimum eligible amount being Rs 10,000/- and maximum Rs 2 crore, it covers a wide range of income earners) and trade in G-securities;they need not have to go through the institutions, associated hassles and pay fee/commission.
Unlike other avenues wherein investment is not safe (while, equity capital is inherently risky, investment in Fixed deposit in a bank is also not free from risk), under the scheme, they get to invest in an avenue (read: G-securities) which is 'safe' and 'secure'.Backed by sovereign guarantee, the investor is assured of receiving - on maturity - the invested amount in 'full' with the promised interest.
However, it does not automatically follow that retail investors will be enthused and come in droves. This is because the yield on G-secs currently at around 6.2 percent is significantly lower than the return a small investor gets from investment in a host of small savings schemes (SSSs). For instance, a senior citizen gets an effective return of 8.3 percent from investing in Pradhan Mantri Vaya Vandana Yojana(PMVVY) or investment in Senior Citizens' Saving Scheme (SCSS)currently 7.4 percent.Even persons below 60 years of age have options such as public provident fund (PPF), national savings certificate (NSC) etc where the returns are higher (7.1 percent and 6.8 percent respectively) than those available on G-securities.
The sole reason behind higher return on SSSs is the subsidy extended by the Union Government on these instruments unlike G-securities where the interest rates are market determined. Considering that subsidy is given primarily to serve a larger welfare objective of protecting the vulnerable class (for instance, senior citizens who donot have regular source of income and are entirely dependent on return from their accumulated savings), it is unlikely that this will be withdrawn.Then, how will the RB-RDS gain traction?
Other than persons with limited savings who use the money for investing in SSSs or other instruments where exemption from income tax (subject to specified cap) is available, there exists a large pool of others - often referred to as high net-worth individual (HNIs) having huge surplus left even after fully exhausting the investment threshold under the former category. Even as HNIs are normally crazy for high returns and go after equity shares, a large number of them would look for
'safer' and 'secure' options even if the return is less.
Investment in G-securities on the RB-RDS which is hassle free and easily accessible fully meets the requirement of such investors. It is good from the perspective of the Government also as it needs long-term capital to finance infrastructure projects such as expressways, highways, railways, ports and so on. However, it should avoid the temptation of extending tax benefit to retail G-sec holders; rather there is a case of removing extant tax benefits on debt mutual fund schemes, RBI floating rate bonds, SSSs, etc.for a level playing field.
The second initiative is crafted around the theme of 'One Nation-One Ombudsman' with one portal, one email and one address for the customers to lodge their complaints regarding deficiency in services provided by banks, non-banking finance companies (NBFCs) and other entities regulated by RBI. With this, the extant three Ombudsman Schemes dealing with Banking, NBFCs and Digital Transactions respectively will cease to exist.
Under this centralized system, the customers will have a single point of reference to file their complaints, submit the documents, track status and provide feedback. Irrespective of the institution, the office/branch where the customer is maintaining his/her account, location, nature of the grievance and so on, all that he/she needs to do is to open his/her laptop and get things done - literally unshackling from the hassles under the existing arrangements.
With large volumes of data stored under a centralized and integrated system, the authorities can also take timely action for preventing financial crime and catching cyber fraud using artificial intelligence (AI) and data analytics.
To conclude, both the initiatives of the RBI are major reforms, first offering a versatile platform to channelize people's savings for financing development needs and second, effectively address their grievances by improving services and protecting their money.
(The writer is a policy analyst. The views expressed are personal.)
