Revamped inflation bonds soon, payment bank on anvil: RBI

Concerned over the lukewarm response to inflation-indexed bonds, the Reserve Bank plans to revise their features to attract more retail investors.

"We had launched inflation-indexed bonds that were not successful. We are coming out with a revised version," RBI Deputy Governor H R Khan told reporters on the sidelines of a BFSI conference organised by SBI Caps Securities here today. The bonds, introduced in June last year by the central bank, were aimed at giving returns that exceed the rate of inflation to ensure that rising prices don't eat into the value of investor savings. 

Khan said one of the reasons for inflation-indexed bonds not doing well was possibly the wrong timing of the launch. The structure of the bonds was complex and investors failed to understand it. He said the RBI and the government are in talks to improve the features of the investment product so as to make it attractive for investors. "We have suggested a few things to the government. One, in terms of increasing the spread and whether we can have non-cumulative option. They (government) are considering, let us see," Khan said. The central bank may also look at offering quarterly interest payout, he said.

Asked if there was any plan to increase the foreign institutional investors' investment limit in government bonds, the Deputy Governor said, "Right now, there is no such discussion under way." 

As recommended by the Nachiket Mor Committee, the RBI will soon come out with India's first payment bank, which will provide deposit and payment services but can't lend, he said. "We are coming up shortly with what could be payment bank because there is a huge potential for financial inclusion with focus on remittances by involving payment system product." 

He said the RBI and the government are discussing a framework on differentiated bank licences. "There is a need for reorienting banking structure. We need small banks, we need big banks. We need differentiated banks."