The Reserve Bank of India has said on Wednesday it will launch bonds linked to inflation rate every month to attract household savings of up to Rs 15,000 crore this fiscal, so as to discourage investments in gold.
The first tranche of the inflation indexed bonds (IIB) for Rs 1,000-2,000 crore will be issued on June 4. These will have a maturity period of 10 years.
Following the announcement made in the Union Budget to introduce instruments that will protect the savings of the poor and the middle classes from inflation and incentivise the household sector to save in financial instruments, rather than buy gold, RBI, in consultation with the Indian government, has decided to launch IIBs, the central bank said in a statement.
In order to create demand for IIBs and make those tradable in the secondary market, the RBI has proposed to issue an initial series of bonds for all class of investors including institutional investors. The second series, beginning in October, will be reserved exclusively for retail investors.
To target greater retail participation, RBI plans to enhance the non-competitive segment for retail and mid-segment investors to 20 per cent from the current 5 per cent, applicable to auction of usual Government of India (GoI) securities.
While the coupon rate (interest rate) will remain fixed, the principal amount invested in the IIBs will be linked to inflation, based on the wholesale price index (WPI), according to RBI.
“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 central bank added.
(Edited by Sanghamitra Mandal) Leave Your Comment