Skip to main content

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


Follow at - Telegram   Instagram   LinkedIn   Twitter   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Report of the Committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the Financial Sector

Reserve Bank of India (RBI) has released the report of the committee to develop a framework for responsible and ethical enablement of artificial intelligence (FREE-AI) in the financial sector. Committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the Financial Sector In the financial sector, Artificial Intelligence (AI) has the potential to unlock new forms of customer engagement, enable alternate approaches to credit assessment, risk monitoring, fraud detection, and offer new supervisory tools. At the same time, increased adoption of AI could lead to new risks like bias and lack of explainability, as well as amplifying existing challenges to data protection, cybersecurity, among others. To encourage the responsible and ethical adoption of AI in the financial sector, the committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the Financial Sector (Chairperson: Dr. Pushpak B...
Post a Comment
Read more

Continuous Clearing and Settlement on Realisation in Cheque Truncation System (CTS)

Reserve Bank of India (RBI) has issued direction on continuous clearing and settlement on realisation in Cheque Truncation System (CTS). What is Cheque Truncation System (CTS)? Cheque Truncation System (CTS) involves halting the physical movement of the cheque and its replacement by images of the instrument and the corresponding data contained in the MICR line.  In CTS, 3 images are taken of each cheque – front Gray Scale, front Black & White and back Black & White. MICR (Magnetic Ink Character Recognition) is a 9-digit code printed at the bottom of cheques using magnetic ink – first 3 digits indicate City Code, middle 3 digits indicate Bank Code and the last 3 digits indicate Bank Branch Code. Only CTS-2010 standards compliant instruments can be presented for clearing through CTS. The presenting banks which truncates the cheques need to preserve the physical instruments for 10 years. From when will the continuous clearing and settlement on realisation in CTS be implemented...
Post a Comment
Read more

What is KYC?

Be it opening a new bank account, applying for a new credit card, registering for new e-wallet, or any other account or facility involving financial matters, the application process is incomplete until KYC is done.  What is KYC? KYC or Know Your Customer is a process of customer identification and verification while opening an account or undertaking a financial transaction. Why is KYC process needed? To prevent money laundering To combat financing of terrorism What is verified under KYC? The banks / financial institutions collect the relevant documents from the customers to verify the following – Proof of identity Proof of address Which documents can be collected for KYC? As per RBI’s Master Direction - Know Your Customer (KYC) Direction, 2016 (Updated as on May 10, 2021), “Officially Valid Document” (OVD) means – Passport Driving licence Proof of possession of Aadhaar number Voter's Identity Card issued by the Election Commission of India Job card issued by NREGA duly signed by an...
Post a Comment
Read more

Investments in Debt Instruments by Non-residents

Reserve Bank of India (RBI) has issued directions on investments in debt instruments by non-residents. What are the channels for investments in debt instruments by non-residents? General Route – for investment in Government securities and corporate debt securities by Foreign Portfolio Investors (FPIs) subject to specified investment limits and macro-prudential limits. Voluntary Retention Route (VRR) – for investments in Government securities and corporate debt securities, free of certain macro-prudential limits applicable to FPI investments in debt markets under the General Route, by FPIs that commit to remain invested for a stipulated retention period. Fully Accessible Route (FAR) – for investments by non-residents in certain specified categories of Central Government securities (‘specified securities’) without any restriction. Scheme for Trading and Settlement of Sovereign Green Bonds (SGrBs) issued by the Central Government by eligible foreign investors in the International Finan...
Post a Comment
Read more

Non-Fund Based Credit Facilities

Reserve Bank of India (RBI) has issued directions on non-fund based credit facilities. To whom shall the directions be applicable? The directions shall apply to the following Regulated Entities (REs) for all their Non-Fund Based (NFB) exposures such as guarantee, letter of credit, co-acceptance etc. Commercial Banks (including Regional Rural Banks and Local Area Banks) Primary (Urban) Co-operative Banks (UCBs) / State Co-operative Banks (StCBs) / Central Co-operative Banks (CCBs) All India Financial Institutions (AIFIs) Non-Banking Financial Companies (NBFCs) including Housing Finance Companies (HFCs) in Middle Layer and above, only for the issuance of Partial Credit Enhancement. The directions shall not apply to the derivative exposures of a RE. Which NFB facilities are permitted to be issued by RE? RE shall issue a NFB facility only on behalf of a customer having funded credit facility from the RE. However, this shall not be applicable in respect of – Derivative contracts entered int...
Post a Comment
Read more