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Competitive and Non-Competitive Bidding for G-Sec

An investor can subscribe to government securities by placing competitive or non-competitive bids in the auctions.

What is Government Security (G-Sec)?

Government Security (G-Sec) is a tradeable instrument issued by the Central Government or the State Governments. 

G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.

What are the types of bidding for G-Secs?

G-Secs are issued through auctions. An investor, depending upon his eligibility, may bid in an auction under either of the following categories –

  • Competitive Bidding
  • Non-Competitive Bidding

What is Competitive Bidding?

  • In a competitive bidding, an investor bids at a specific price / yield and is allotted securities if the price / yield quoted is within the cut-off price / yield. 
  • Competitive bids are made by well-informed institutional investors such as banks, financial institutions, PDs, mutual funds, and insurance companies. 
  • The minimum bid amount is ₹10,000 and in multiples thereof. 
  • Multiple bidding is also allowed, i.e., an investor may put in multiple bids at various prices / yield levels.

What is Non-Competitive Bidding (NCB) facility?

With a view to encouraging wider participation and retail holding of Government securities, retail investors are allowed participation on ‘non-competitive’ basis in select auctions of dated Government of India (GoI) securities and Treasury Bills.

Who are allowed to bid under NCB?

  • Participation on a non-competitive basis is open to a retail investor who –
    • Does not maintain current account (CA) or Subsidiary General Ledger (SGL) account with Reserve Bank of India (RBI)
    • Submits the bid indirectly through an Aggregator / Facilitator permitted under NCB.
  • Retail investor, for the purpose of NCB, is any person, including individuals, firms, companies, corporate bodies, institutions, provident funds, trusts, etc. 
  • Regional Rural Banks (RRBs) and Cooperative Banks are covered under NCB only in the auctions of dated securities in view of their statutory obligations and are eligible to submit their non-competitive bids directly. 
  • State Governments, eligible provident funds in India, the Nepal Rashtra Bank, Royal Monetary Authority of Bhutan, with the approval of Government, are covered under NCB only in the auctions of T-Bills without any restriction on the maximum amount of bid and their bids are outside the notified amount. 

What are criteria for placing bids under NCB?

  • Under NCB, an investor can make only a single bid in an auction.
  • In case of GoI securities, allocation of non-competitive bids from retail investors is restricted to a maximum of 5% of the aggregate nominal amount of the issue within the notified amount. 
  • The minimum amount for bidding is ₹10,000 (face value) and thereafter in multiples of ₹10,000. 
  • In the auctions of GoI dated securities, the retail investors can make a single bid for up to ₹2 crore (face value) per security per auction.
  • The aggregate amount reserved for NCB in the case of SDLs is 10% of the notified amount subject to a maximum limit of 1% of notified amount for a single bid per stock.
  • In addition to scheduled banks and primary dealers, specified stock exchanges are also permitted to act as aggregators / facilitators. These stock exchanges submit a single consolidated non-competitive bid in the auction process.

How are securities allotted under NCB?

  • Allotment under the non-competitive segment is at the weighted average rate of yield / price that emerge in the auction on the basis of the competitive bidding. The Aggregator / Facilitator can recover up to 6 paise per ₹100 as brokerage / commission / service charges for rendering this service to their clients. 
  • In case the aggregate amount of bid is more than the reserved amount (5% of notified amount), pro rata allotment is made. 
  • In case the aggregate amount of bids is less than the reserved amount, the shortfall ise taken to competitive portion.


References

Reserve Bank of India. (2020, April 01). 'Government Securities Market in India – A Primer'. Retrieved from https://www.rbi.org.in/Scripts/FAQView.aspx?Id=79


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