To enable medium and small investors to participate in the auction process without taking the price risk in auctions, the Reserve Bank of India has introduced a facility of non-competitive bidding in dated government securities auctions for select set of investors. Non-competitive bidding means that a person would be able to 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 in accordance with the scheme, he will be allotted securities fully or partially.

Participation in the Scheme of non-competitive bidding is open to any person including firms, companies, corporate bodies, institutions, provident funds, trusts and any other entity as prescribed by RBI. As the focus is on the small investors lacking market expertise, the Scheme will be open to those who do not have current account (CA) or Subsidiary General Ledger (SGL) account with the Reserve Bank of India. As an exception, Regional Rural Banks (RRBs) and Urban Cooperative Banks (UCBs) can also apply under this Scheme in view of their statutory obligations.

1. The non competitive bidding facility will encourage wider participation and retail holding of government securities.

2. It will enable individuals, firms and other mid segment investors who do not have the expertise to participate in the auctions.

3. Such investors will have a fair chance of assured allotments at the rate which emerges in the auction.

Non-competitive bids will be allowed up to 5 per cent of the notified amount in the specified auctions of dated securities, within the notified amount. That is, if the notified amount is Ra.1000 crore, the amount reserved for non-competitive bidders would be Rs.50 crore and the remaining Rs.950 crore will be put up for competitive auctions.

Generally, it is available in all auctions of Central Government dated securities. The availability of non-competitive bidding facility in an auction will be announced along with the respective press release and the information is made available on Reserve Bank’s website.

This Scheme is not applicable to auctions of Treasury Bills. However, even in the case of Treasury bills, a different type of non-competitive bidding is permitted, only for State Governments, eligible provident funds and select foreign central banks.

Eligible investors cannot participate directly. They have to necessarily come through a bank or Primary Dealer (PD) for auction. 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.

The minimum amount for bidding will be Rs.10,000 (face value) and in multiples in Rs.10,000.

An investor can make only a single bid through any bank or PD under this scheme in each specified auction. The bank or PD through whom the investor bids will obtain and keep on record an undertaking to the effect that the investor is making not making a bid through any other bank or PD.

Yes. This is available on the RBI website. The bank/PD through whom the application is made will assist the investor to obtain the form.

The allotment to the non-competitive segment will be at the weighted average rate of all allotments to competitive bidders.

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 of bids for Non competitive segment is 12 crore. The partial allotment percentage is =10/12=83.33%. That is, each bank or PD who has submitted non-competitive bids received from eligible investors will get 83.33% of the total amount submitted by him. 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 added to the amount available for competitive auction.

It will be responsibility of the bank or PD to appropriately allocate securities to their clients in a transparent manner.

The investor pays the weighted average price of all accepted competitive bids. In case of a yield based auction, the weighted average yield in the auction will be used to arrive at the allotment price for non-competitive bids.

Since the bank/PD has to make payment on the date of issue itself, in case payment is made by the client after 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 7.59% GOI 2016, the payment is made three days after the date of issue, the accrued interest component will amount to (7.59/100) x (3/360) = Rs.0.0632 per Rs.100 face value.

For example, if the weighted average price is Rs.100.21, the total amount payable by the investor for acquiring securities worth Rs.10,000 after three days will be Rs. 10, 021 + Rs. 6.32 = Rs.10, 027.32 (if not rounded off) .

The non competitive bidders will pay the weighted average price which will emerge in the auction. In addition, they have to pay interest accrued from the last coupon payment date to the date of issue of the security.

The transfer of securities to the clients should be completed within five working days from the date of the auction. This is the responsibility of the bank/PD.

RBI will issue securities only in demat (SGL) form. It will credit the securities to the CSGL account of the bank/PD. The bank/PD will in turn credit the securities to the dematerialised securities account of the investor.

Yes. At the instance of the investor, subsequent to the transfer of the security to the investor's dematerialized account conversion, to the physical form is allowed at the RBI.

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.

The bank or the PD can recover upto six paise per Rs.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. The bank or the PD is not permitted to build any other cost, such as funding cost, into the price.

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.