RBI plans to come up with inflation-indexed bonds soon
Mumbai: The Reserve Bank Friday said it plans to come up with inflation-indexed bonds soon, which will help retail investors to hedge effectively against inflation.
"One area where we are working and will probably see a lot of retail interest is inflation-indexed bonds. Hopefully, we will introduce it soon," RBI deputy governor HR Khan told a capital markets event organised by Ficci here this evening.
Khan said a joint group, which includes members from the RBI and the government, is working on this issue.
Talking about the rationale behind floating such bonds, Khan said this will work as an effective hedging strategy and people will shy away from gold as a hedging tool against inflation.
Both issuers and subscribers would benefit out of the inflation-indexed bonds, he said adding the central bank may incentivise banks and primary dealers for opening demat accounts for people wishing to invest in these bonds.
Talking about possible reduction of withholding tax on the rupee-denominated bonds, Khan said, "at present, the rupee-denominated infrastructure bond doesn't get the benefit (of 5 percent withholding tax). So, there is a proposal that the same 5 percent withholding tax should be applicable to the rupee-denominated infra bonds, which is high on the government agenda".
Last month, the government reduced the withholding tax on external commercial borrowing and dollar-denominated infra bonds to 5 percent from 20 percent to lower the cost of borrowings for companies and attract capital inflows.
About corporate bond market, he said "There is a need to create depth, liquidity and vibrancy in the government security and corporate bond market so as to enable raising of finance and reduce dependence on the banking system.
"It ensures efficient allocating funds, help improving corporate balance sheets and financial inclusions."
He also said there is a need to have various players in the infrastructure financing space.
"We need to have variety of players in infrastructure financing. Nearly Rs 52 trillion are needed for infrastructure financing of which 42 percent will come through the PPP model. We need to develop this market," he said.
Replying to a question whether bonds issued by SEBs will be treated as SLR bonds, Khan said, "We have not received any specific proposals in this regard. Normally, SLR status is given only to those instruments which come under approved market borrowing programme".