MUMBAI: The Reserve Bank of India will kick off the sale of inflation-linked bonds for the first time in over a decade to lure investors away from gold, the imports of which have widened India's current account deficit.
RBI will issue the inflation-indexed bonds (IIBs) worth Rs 12,000-15,000 crore this fiscal year, as announced in the Union Budget. Inflation-indexed bonds are a new category of debt instruments to be introduced in India where the coupon and principal amount would be linked to the rate of wholesale price inflation with a lag of four months, said the RBI notification.
"IIBs will be having a fixed real coupon rate and a nominal principal value that is adjusted against inflation," said the notification "Periodic coupon payments are paid on adjusted principal. Thus these bonds provide inflation protection to both principal and coupon payment. At maturity, the adjusted principal or the face value, whichever is higher, will be paid."
The objective of introducing such bonds is to channelize savings into productive sources of instruments from unproductive ones like gold.
"These bonds should ideally attract savers," said Ajay Manglunia, head, fixed income, Edelweiss Financial Services. "The timing of the issue by RBI is very good, and it makes sense to issue these bonds when inflation is low, so investors get higher returns. Retail investors have never been very interested in government securities because of lower returns in a high-inflation environment," he added.
RBI's first tranche of bonds would be issued for retail as well as institutional investors in the first half of the fiscal, and the second series, to be issued in the second half of the current fiscal, would be exclusively for retail investors, the RBI notification said.
Retail participants can place their bids for these bonds by opening subsidiary general ledger accounts with banks or primary dealers, who trade exclusively in the bonds sector.
Source : economictimes.indiatimes.com