FAQs - Primary Issuances Non Competive Bidding
Who can participate in the Scheme?
Participation in the Scheme of non-competitive bidding is open to to eligible Retail Direct Investors as prescribed by RBI. As the focus is on the small investors lacking market expertise, the Scheme will be open to those who
- do not have current account (CA) or Subsidiary General Ledger (SGL) account with the Reserve Bank of India
- do not require more than Rs.two crore (face value) of securities per auction
What is non-competitive bidding for dated Government securities?
Non-competitive bidding means the bidder would be able to participate in the auctions of dated government securities without having to quote the yield or price in the bid. Thus, he will not have to worry about whether his bid will be on or off-the-mark; as long as he bids in accordance with the scheme, he will be allotted securities fully or partially.
What are the advantages of the non-competitive bidding facility?
The non competitive bidding facility will encourage wider participation and retail holding of government securities. It will enable individuals , firms and other mid segment investors who do not have the expertise to bid competitively in the auctions. Such investors will have fair chance of assured allotments at the rate which emerges in the auction.
What would be the amount offered for non-competitive bidding?
Non-competitive bids will be allowed upto 5 percent of the notified amount in the specified auctions of dated securities.
Will the amount reserved for non-competitive bids be a part of the notified amount?
Yes. The reserved amount will be within the notified amount.
Will non-competitive bidding be allowed in all dated securities auctions?
Yes. Non-competitive bidding will be allowed only in all auctions of dated Government of India securities, Treasury Bills and State Government securities which will be announced as and when proposed to be issued.
How can the eligible investors participate in the auctions?
Eligible investors cannot participate directly.
What is the minimum bidding amount?
The minimum amount for bidding will be Rs.10,000 (face value) and in multiples in Rs.10,000.
How many bids can an investor make under this scheme?
An investor can make only a single bid under this scheme in each specified auction.
How will the aggregate bid be placed with RBI?
Each bank or PD will, on the basis of firm orders, submit a single bid for the aggregate amount of non-competitive bids on the day of the auction.
How does the process of auction work?
The Government of India notifies the auction of government securities. It also notifies the amount and whether it will be a new loan or reissue of an existing loan. It also announces whether the bidders have to bid for the price or the coupon (interest rate).The competitive bidders put in competitive bids for the price or the coupon. The cutoff price or the coupon is then announced by RBI on the basis of the bids received. All successful bidders will be allotted the security auctioned either in full or in part.
Example: Recently, an auction was held for government of India's 10 year Government Stock in which the notified amount was Rs.5,000 crore. The coupon rate for cut-off yield was 6.10 per cent. The weighted average yield was, however, 6.08 per cent since allotments were made to different successful bidders at the rates quoted by them at or below the cut off rates (i.e. multiple price auction system).Please check the current yields on government securites.
At what rate will the non-competitive bidders get the allotment?
The allotment to the non-competitive segment will be at the weighted average rate that will emerge in the auction on the basis of competitive bidding.
How will the RBI allot the bids to non-competitive bidder?
The RBI will allot the bids under the non-competitive segment to the bank or PD which, in turn, will allocate to the bidders.
At what rate will the non-competitive bidders get the allotment?
In case the aggregate amount bid is more than the reserved amount through non-competitive bidding, allotment would be made on a pro rata basis.
Example: Suppose, the amount reserved for allotment in non competitive basis is 10 crore. The total amount bid at the auction for Non competitive segment is 12 crore. The partial allotment percentage is =10/12=83.33%.
The actual allocation in the auction will be as follows:
Bidder Bid Amount Allotment Bank 1 2 crore 1,66,70,000 Bank 2 3 crore 2,50,00,000 PD 1 1 crore 83,30,000 PD 2 1 crore 83,30,000 Bank 3 5 crore 4,16,70,000
It may be noted that the actual allotment may vary slightly at times from the partial allotment ratio due to rounding off with a view to ensuring that the allotted amounts are in multiples of 10,000/-.
And if the amount bid through non-competitive bidding is less than the reserved amount?
In case the aggregate amount bid is less than the reserved amount all the applicants will be allotted in full and the shortfall amount will be taken to the competitive portion.
How will the RBI/CCIL make partial allotment?
It will be responsibility of the RBI/CCIL to appropriately allocate securities to their clients in a transparent manner.
How much does the investor pay for taking possession of the security of face value Rs. 10,000?
In the illustration above, where the auction was yield based, the cut off rate that emerged in the auction was 6.10 per cent; while the weighted average cut off rate was 6.08 per cent. At the weighted average rate of 9.36 per cent the price of the security works out to Rs.100.24. Therefore, under the Scheme, the investor will get the security at Rs.100.24. Hence, price payable for every Rs.100 (face value) is Rs. 100.24. Therefore, for securities worth Rs.10,000, he will have to pay (Price x Face value/100) = 100.24 x 10,000/100=Rs.10,240/-
What will be position in respect of price based auctions?
The non competitive bidders will pay the weighted average price which will emerge in the auction.
For example, recently RBI held a price based auction of an existing security 6.67% GOI 2050 maturing on 17December, 2050. The cut off price emerged in the auction was Rs. 94.47. The weighted average price was Rs. 94.90. Thus the non competitive bidders will pay the weighted average price of Rs. 94.90. In addition, they have to pay accrued interest as indicated below.
So, how much will be non-competitive bidder pay to buy the above securities worth Rs.10,000?
Price payable for every Rs.100 (face value) is Rs.94.90. Therefore, for securities worth Rs.10,000, he will have to pay (Price x Face value/100) = 94.90 x 10,000/100=Rs.9490/-
Since the coupon on dated GOI securities are payable half yearly, the coupon payment dates for the security are 17 December/ 17 June.
Now if the security was paid for (settled) on October11, 2021, the accrued interest from the last coupon date to the date of settlement viz. from 17June, 2021 to October11, 2021, i.e. for 114 days will be 6.67/100 x 114/360x10000=Rs211.22
Hence, the amount payable by the investor will be price plus accrued interest, i.e. Rs9490 +211.22=9,701.22/- (if not rounded off).
Since the weighted average price is not known at the time of bidding, RBI/CCIL will charge a mark-up over and above the price of the security. Once the weighted average cut off price is announced by RBI, the excess mark up will be refunded by CCIL on the date of auction settlement.
In how many days will the investor receive the security?
The transfer of securities to the clients should be completed within five working days from the date of the auction.
How will the securities be issued ?
RBI will issue securities only in demat (SGL) form. It will credit the securities to the CSGL account of the bank/PD .
What is SGL account and what is CSGL account ?
SGL or CSGL/Gilt Accounts are a demat form of holding government securities with the RBI. Just as an investor can hold shares in demat form with a depository participant, he can also hold government securities in an account with with RBI under the Retail Direct scheme.
Will RBI/CCIL charge for this service?
No fee will be charged for opening and maintaining ‘Retail Direct Gilt account’ with RBI. No fee will be charged by the aggregator for submitting bids in the primary auctions. Fee for payment gateway etc., as applicable, will be borne by the registered investor.
How will the non-competitive bidder know the modalities of make payment for the bids?
Payment to RBI/CCIL can be made through either of the following ways:
- Using the net-banking/UPI facility from the linked bank account, whereby funds will be debited at the time of submission of bids on the portal.
- Using the UPI facility, whereby funds in the linked bank account can be blocked at the time of submission of bids on the portal which will be debited from this account on successful allotment in the auction. Similar facility through banks will be made available in due course.
When will the excess mark up collected at the time of bidding be refunded?
The excess market refund, if any, will be credited to the investor’s bank account as per the timelines specified by RBI/CCIL.
Is there any hidden cost in this?
No. RBI/CCIL will not charge any other cost from the client other than accrued interest as indicated above and payment gateway charges.
Will RBI monitor and review the scheme ?
RBI/CCIL will furnish information relating to the Scheme to the Reserve Bank of India as and when called for. RBI can also review the guidelines. If and when the guidelines are revised, RBI will notify the modified guidelines.