Subdued response to inflation-indexed bonds; RBI offers sop

Irked by the subdued response to inflation-indexed bonds among small investors, the Reserve
Bank today offered an additional 0.5 per cent incentive to banks that clock subscriptions of Rs 100 crore by March end.

The government and the RBI launched the Inflation-Indexed National Savings Securities in December, aimed at protecting the savings of the poor and middle classes from rising prices.

Subscription to these bonds is open till March 31.

To incentivise distribution of the product, it has been decided to offer an additional incentive at the rate of 0.5 per cent on the amount collected to agency banks (including Stock Holding Corporation of India) that garner subscriptions of Rs 100 crore or more by March 31, the central bank said.

This incentive will be in addition to the handling commission of 1 per cent paid on subscription collections.

"As these bonds serve public policy goals, are risk free and carry premature redemption facility imparting liquidity, it is imperative that the banks should offer the product to large number of customers through branch network," it said, acknowledging that the response to be issue "has been subdued."

The bonds opened for subscription during December 23-31. Later, the RBI extended the time for issuance of the bonds to March 31.

The minimum investment in these bonds is Rs 5,000 and the maximum is Rs 5 lakh per applicant per annum.

Individuals, Hindu undivided families, charitable institutions and universities are eligible for subscription.

The bonds offer interest at a fixed rate of 1.5 per cent plus the inflation rate calculated with respect to the final combined Consumer Price Index, used with a three-month lag.