RBI announced that it would provide retail investors online access to government security (G-Sec) markets & open their gilt securities account with RBI directly. What is changing? Why is this a big deal? What are implications? A

TL;DR: Direct access, IF EXECUTED WELL, can increase returns for savers, reduce funding costs for government, force banks to become more efficient & start us on journey towards a CBDC.

At present, Indian retail investors can participate via aggregator platforms & hold G-Secs in demat form with a depository & trade them on stock exchanges. Key issue: Low incentive for aggregators to facilitate access & low liquidity in the secondary market.

Soon, retail investors can open a Gilt Securities Account (CSGL) with RBI. While details are not available, it is likely that individuals can more easily open CSGL accounts (typically through banks) -so they can hold govt bonds directly with RBI rather than through depositories.

Key unknowns: What is KYC mechanism? How will retail investors access primary & secondary markets for G-Secs? Will minimum amounts be reduced to encourage retail participation?

How can it become a big deal? If it is easy to open a Gilt Securities Account (eg. No KYC if linked to bank account) & easy to transact (buy/sell/lien 24x7 with bank as market-maker + option to trade in open market), more household savings can directly fund the government.

Currently, retail money goes to government directly thru Small Savings Schemes & indirectly through bank deposits (since ~25% of deposits go to buying G-Secs due to SLR/CRR norms).

With Retail Direct, retail investors get higher returns, greater safety & potentially more liquidity. Instead of a 5-year SBI FD at 5.4%, a person could invest in a 5-year G-Sec at 5.58% or may be in a state government bond that yields even higher - say 6%+ .

Retail investors are more stable than institutional investors who may have different constraints & motivations (trading P&L, bonuses). So, having a large direct retail base can help the government borrow at lower costs.

Also, this could be the first step towards a Central Bank Digital Currency. Enabling retail investors to directly have accounts with the central bank could over time facilitate a CBDC if money can move between these CSGL accounts.