India's SGB to Become More Investor Friendly

New Delhi: The Indian government, in consultations with banks and the Reserve Bank (RBI), is finalizing a fourth tranche of sovereign gold bonds (SGB), reports Business Standard.

This one is expected to be more investor-friendly and options under consideration include selling bonds also through a stock exchange, via an offer for sale (OFS), where member-brokers can put orders on behalf of investors.

There is also some procedural simplification under consideration, say sources. In the earlier tranche, RBI was not able to complete issue of bond certificates; these are being issued now. RBI is sending these wherever possible through e-mails; a demat process is also said to be on.

The government is also considering if the interest rate paid, now 2.75% per annum, needs to be aligned with the overall rate structure. Recently, the government cut interest rates on all saving instruments, including postal savings, in line with an overall falling rate structure. At a fixed 2.75%, the government knows the outgo during the tenure.

On sale through an exchange via OFS, also used for divesting stake in public sector units, the government might decide on a ceiling; if the orders are more, allotments can be made proportionally, explained an official. However, if there is no issue size, “all orders will be fulfilled, subject to a 500g a year limit per investor”, said a BSE official, which plans to list trades in SGBs.

Like any other bond application, under the OFS model, too, collateral is collected before the bidding process and the bid is validated against the collateral available with the exchange. Brokers can provide this on behalf of their customers. When an investor is allotted, RBI and the exchange will inform the investor. Gold bonds are part of the government’s market borrowing, an instrument for diverting physical gold investors towards ‘paper gold’, with a return, credited semi-annually. The aim is to dampen physical import of gold.