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Invest in Government Securities
Axis Bank offers the facility of non-competitive bidding for dated Government Securities, through which investors can buy Government Securities directly from the RBI.The participation in the retailing of government securities is open to individuals, HUFs, firms, companies, corporate bodies, institutions, provident funds, trusts and any other entity prescribed by the RBI. The investors can either bid for the rate of interest (coupon) for new government securities, or for the price of an existing government security which is being reissued. All the information about the retailing of government securities such as maturity date of the paper, the size of the auction and the type of auction (price based or yield based) will be available at the branches.
The auctions are of two types:
- Price based auctions
auctions where bids are evaluated on basis of the price of the bond and the cut off is given in rupees or paise
- Yield based auction
Auctions where the cut off is given on the basis of the yield
You can participate in the Non-competitive Bidding by filling the application form, which is available at our branches. Also an undertaking from the investor that he is making a single bid only is necessary as per RBI guideline. You can download the application form by click here. Axis Bank will take a nominal charge of 6 paise per Rs 100 as commission for rendering the service to the investors. The commission will be built into the price of the security.
After successful acquisition of the security, the customer can
Keep the security in his name in the CSGL account of Axis Bank in RBI, or, Get his security credited to his existing demat account with a depository participant.
This facility in presently offered only to existing customers so that the funds can be debited from the account of the investor. The customer (investor) has to have sufficient balance in the account. Click here to know more about our savings bank account.
Axis Bank is a registered member (Depository Participant) of NSDL. Click here to know more about our depository services.
Click here to apply for a Retailing of Government Securities.' in how to particpiate section in second para of that description above Q/A
Click here to apply for a Retailing of Government Securities.
Retailing of government securities - eligibility
Retailing of government securities - Ways to participate
Frequently Asked Questions
Axis Bank offers retailing of government securities to individuals, HUFs, firms, companies, corporate bodies, institutions, provident funds, trusts and any other entity prescribed by the RBI. Find all the answers to your queries on non-competitive bidding in the retailing of government securities in the FAQs listed below:
Participation in the scheme of non-competitive bidding is open to individuals, HUFs, firms, companies, corporate bodies, institutions, provident funds, trusts and any other entity prescribed by the RBI. As the focus is on small investors lacking market expertise, the scheme will be open to those who:
- Do not have a Current Account (CA) or Subsidiary General Ledger (SGL) account with the Reserve Bank of India.
- Do not require more than ₹1 crore (face value) of securities per auction.
Regional Rural Banks (RRBs), urban cooperative banks (UCBs), and Non-Banking Financial Companies (NBFCs) can also apply under this scheme as an exception in view of their statutory obligations. However, the restriction regarding the maximum amount of ₹1 crore per auction per investor will remain applicable.
Non-competitive bidding means the bidder can 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 according to the scheme, he will be fully or partially allotted securities.
- 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.
It will be responsibility of the bank or PD to appropriately allocate securities to their clients in a transparent manner.
Non-competitive bids will be allowed upto 5 percent of the notified amount in the specified auctions of dated securities.
Yes. The reserved amount will be within the notified amount.
To begin with, non-competitive bidding will be allowed only in select auctions of dated Government of India securities which will be announced as and when proposed to be issued.
No. The scheme is not applicable for Treasury Bills.
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. The bank or PD will furnish details of individual customers, viz., name, amount, etc. along with the application.
This will be notified at the time of announcement of the specific auction for which non competitive bids will be invited.
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 the Government of India's 11-year Government Stock in which the notified amount was ₹5,000 crores. The coupon rate for the cut-off yield was 9.40 per cent. The weighted average yield was, however, 9.36 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).
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. (Please see answers to Q14 & Q17).
The RBI will allot the bids under the non-competitive segment to the bank or PD which, in turn, will allocate to the bidders.
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 |
|---|---|---|
| Bank1 | 2 crore | 1,66,70,000 |
| Bank2 | 3 crore | 2,50,00,000 |
| PD1 | 1 crore | 83,30,000 |
| PD2 | 1 crore | 83,30,000 |
| Bank3 | 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.
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.
It will be responsibility of the bank or PD to appropriately allocate securities to their clients in a transparent manner.
In the illustration of Question 14 above, where the auction was yield-based, the cut-off rate that emerged in the auction was 9.40 per cent, while the weighted average cut-off rate was 9.36 per cent. At the weighted average rate of 9.36 per cent, the price of the security works out to ₹100.27. Therefore, under the scheme, the investor will get the security at ₹100.27. Hence, the price payable for every ₹100 (face value) is ₹100.27. Therefore, for securities worth ₹10,000, the investor will have to pay (Price × Face value/100) = 100.27 × 10,000/100 = ₹10,270.
Since the bank/PD has to make payment on the date of issue itself, in case payment is made by the client after the date of issue of the security, the consideration amount payable by the client to the bank or the PD would include accrued interest. For example, if for security 9.40% GOI 2015, the payment is made three days after the date of issue, the accrued interest component will amount to 9.40/100 × 3/360 × 10,000 = ₹7.83.
Hence, if the security price is ₹100.27, the total amount payable by the investor for acquiring securities worth ₹10,000 after three days will be ₹10,270 + ₹7.83 = ₹10,277.83 (if not rounded off).
The non-competitive bidders will pay the weighted average price which will emerge in the auction.
For example, on December 5, 2001, RBI held a price-based auction of an existing security 10.71% GOI 2016 maturing on 19 April 2016. The cut-off price that emerged in the auction was ₹121.92. The weighted average price was ₹121.99. Thus, the non-competitive bidders will pay the weighted average price of ₹121.99. In addition, they have to pay accreued interest as indicated below.
The price payable for every ₹100 (face value) is ₹121.99. Therefore, for securities worth ₹10,000, the investor will have to pay:
(Price x Face value / 100) = 121.99 x 10,000 / 100 = ₹12,199.
Since the coupon on dated GOI securities is payable half-yearly, the coupon payment dates for the security are 19 April and 19 October.
Now, if the security was paid for (settled) on December 6, 2001, the accreued interest from the last coupon date (19 October 2001) to the date of settlement (December 6, 2001) for 47 days will be:
(10.71 / 100) x (47 / 360) x 10,000 = ₹139.83.
Hence, the amount payable by the investor will be:
Price + accreued interest = ₹12,199 + ₹139.83 = ₹12,338.83 (if not rounded off).
If the payment is made on December 9, 2001, the accreued interest will be calculated for 50 days instead of 47 days (i.e. 3 days more) and will work out to:
(10.71 / 100) x (50 / 360) x 10,000 = ₹148.75.
The total amount payable by the investor will then be:
₹12,199 + ₹148.75 = ₹12,347.75 (if not rounded off).
The transfer of securities to the clients should be completed within five working days from the date of the auction.
RBI will issue securities only in demat (SGL) form. It will credit the securities to the CSGL account of the bank/PD.
SGL or CSGL 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 a bank or a PD. Securities kept on behalf of customers by banks or PDs are kept in a segregated CSGL Account with the RBI. Thus, if the bank or the PD buys security for his client, it gets credited to the CSGL account of bank or PD with the RBI.
No. It will not be mandatory for the retail investor to maintain a constituent subsidiary general ledger (CSGL) account with a bank or a primary dealer (PD) through whom it proposes to participate in the auction. It will, however, be convenient for the investor to have such an account.
Yes, the PD/ bank through whom the application is made must clearly indicate such mode of crediting the securities.
Yes. At the instance of the investor, subsequent conversion to the physical form is allowed.
RBI will issue the securities to the bank or PD that has bid on behalf of non-competitive bidder against payment made by the bank or PD on the date of issue itself.
The non-competitive bidder will make payment to the bank or the PD through which he has put the bid and receive his securities from them.
In other words, the RBI will issue securities to the bank or the PD against payment received from the bank or the PD on the date of issue irrespective of whether the bank or the PD has received payment from their clients.
Yes, the bank or the PD can recover up to six paise per ₹100 as commission for rendering this service to their clients.
The bank or the PD can build this cost into the sale price or it can recover separately from the clients.
Modalities for obtaining payment from clients towards the cost of securities, accrued interest, wherever applicable and commission will have to be worked out by the bank or the PD and clearly stated in the contract made for the purpose with the client.
No. The bank or the PD is not permitted to build any other cost, such as funding cost, into the price. In other words, the bank or the PD cannot recover any other cost from the client other than accrued interest as indicated in Q21 and Q23 and commission(Q31).
PDs and banks 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.
Auction process
Axis Bank offers the facility of non-competitive bidding for Government Securities. Participation in the government securities auction is open to individuals, HUFs, firms, companies, corporate bodies, institutions, provident funds, trusts and any other entity prescribed by the RBI.
You can find out more about the auction process for government securities below:
The RBI will allot the bids under the non-competitive segment to the bank or PD which, in turn, will allocate to the bidders.
In case the aggregate amount bid is more than the reserved amount through non-competitive bidding, the allotment would be made on a pro-rata basis. Example: Suppose the amount reserved for allotment on a non-competitive basis is ₹10 crores. The total amount bid at the auction for a non-competitive segment is ₹12 crores. The partial allotment percentage is =10/12=83.33%. The actual allocation in the auction will be as follows:
| Bidder | Bid Amount | Allotment |
|---|---|---|
| Bank1 | 2 crore | 1,66,70,000 |
| Bank2 | 3 crore | 2,50,00,000 |
| PD1 | 1 crore | 83,30,000 |
| PD2 | 1 crore | 83,30,000 |
| Bank3 | 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.
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.
It will be responsibility of the bank or PD to appropriately allocate securities to their clients in a transparent manner.
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