Govt savings bonds to offer higher rate of interest than small savings

In a move that may increase retail appetite for government bonds, the Centre on Friday evening said it is going to issue a floating rate, taxable savings bond for an initial coupon of 7.15 per cent, to be reset half yearly from January 1 next year.

The coupon rate will be pegged with the prevailing National Saving Certificate (NSC) rate with a spread of 35 basis points over the respective NSC rate, the details and operational guidelines on which will be issued by the Reserve Bank of India (RBI) shortly. 

The bond will replace the savings bonds offered by the government at 7.75 per cent until May 28. The key difference is that the earlier one was fixed, and now this is going to be floating, and can thus work as an inflation hedge, while saving the government from higher cost when rates are low. 

The bond will be available at State Bank of India and other nationalised banks, as well as four private sector banks, the RBI said in a statement. The bonds will be available only for resident Indians, or to a Hindu undivided family.

Subscription to the bonds will be in the form of cash (up to Rs 20,000), drafts, cheques or any electronic mode. The bonds won’t be transferable, except to a nominee or legal heir in case of death of the holder of the bonds. The interest payable will be on a half -yearly basis, and there is no option to pay interest on cumulative basis.

The brokerage for the bonds would be 0.5 per cent of the amount mobilised by the bank, while at least 50 per cent of the brokerage will have to be paid to the brokers and sub brokers registered with them to the extent of them getting investors for the bonds.