FinTechRBI Initiative- Mobile Application for RBI Retail Direct Portal

INTRODUCTION

In a recent development, the Reserve Bank of India (hereinafter referred to as “RBI”) introduced three significant initiatives – the PRAVAAH portal, RBI Retail Direct mobile application, and FinTech Repository. These initiatives were initially announced in the RBI’s bi-monthly Statement on Development and Regulatory Policies in April 2023, April 2024, and December 2023, respectively. The primary objective of these initiatives is to streamline regulatory processes, facilitate convenient access to government securities (hereinafter referred to as “G- Secs”) for retail investors, and enhance the understanding of the FinTech sector.

OVERVIEW OF THE INITIATIVES

1. PRAVAAH Portal: A cutting-edge platform called PRAVAAH (Platform for Regulatory Application, Validation, and Authorisation) has been launched to streamline the process of applying for regulatory approvals online. This innovative portal enables individuals and entities to easily submit their applications with efficiency and ease.
2. Retail Direct Mobile App: Another exciting initiative, the Retail Direct Mobile App, has been designed to empower retail investors with seamless access to the retail direct platform. By simplifying transactions in G-Secs, this user-friendly app offers individual investors a convenient and hassle-free way to engage in the securities market.
3. FinTech Repository: The introduction of the FinTech Repository signifies a pivotal step towards gathering essential information about FinTech firms, their operations, and technological advancements. FinTech entities, both licensed and unregulated, are encouraged to contribute to this repository, fostering a collaborative environment within the sector.

Moreover, alongside the FinTech Repository, the EmTech Repository is set to be unveiled, dedicated to RBI-regulated institutions like banks and Non-banking finance companies (hereinafter referred to as “NBFCs”). This repository will showcase how these organizations leverage cutting-edge technologies such as AI, ML, Cloud Computing, DLT, Quantum, and more in their operations, highlighting their innovative endeavours.

PURPOSE AND SCOPE OF THE RETAIL MOBILE APP

Historically, individual investors in India have shown limited involvement in the G-sec market, as institutional entities like commercial banks, cooperative banks, regional banks, provident funds, insurance companies, pension funds, mutual funds, and NBFCs have dominated the G-Secs market.

The Retail Direct mobile application serves the purpose of providing a seamless and user-friendly platform for the individual investors to invest their funds in G-Secs. This innovative app enables investors to conveniently purchase central and state Government bonds, as well as Treasury bills. The intention behind this initiative is to foster increased individual participation in the government bonds market.

Through the RBI Retail Direct Scheme, individual investors gain access to gilt accounts with the RBI, allowing them to engage in investing in G-Secs. This scheme offers investors the opportunity to not only purchase securities in primary auctions but also buy and sell securities through the NDS-OM platform. A wide pool of investors for Government bonds ensures a steady demand for G-secs from the perspective of the issuer.

Moreover, a diverse investor base with different risk appetites, investment durations, and trading objectives promotes active trading, which enhances liquidity. This increased liquidity allows the Government to borrow funds at more favourable rates. For investors, this scheme offers a viable alternative investment opportunity that ensures both attractive returns and capital preservation.

By introducing the Retail Direct mobile app, the RBI aims to enhance accessibility, simplify the investment process, and encourage greater participation of individual investors in the G-Secs market. It not only benefits the investors by offering them a secure and rewarding investment avenue but also assists the government in efficiently managing its borrowing requirements.

HOW TO USE THE MOBILE APPLICATION

The app offers investors the flexibility to engage in buying and selling financial instruments on-the-go, providing them with the convenience of managing their investments anytime and anywhere.

For such transactions, payments can be easily made through a savings bank account utilizing internet banking or Unified Payments Interface (hereinafter referred to as “UPI”).

Along with facilitating transactions, the app also offers a range of investor services such as generating transaction and balance statements, setting up nominations, pledging or putting securities under lien, and even facilitating gift transactions.

Furthermore, investors have access to support services directly through the app, as well as through a dedicated toll-free telephone number (1800-267-7955) and email assistance.

UNDERSTANDING RBI RETAIL DIRECT PORTAL

The RBI has been making consistent efforts to boost retail participation in G-Secs. As part of this initiative, the ‘RBI Retail Direct’ facility was announced in the Statement on Developmental and Regulatory Policies on February 5, 2021. The scheme was aimed to simplify the process for retail investors to have access to the government securities market, both primary and secondary. It also offers the convenience of opening a gilt securities account, known as the Retail Direct Gilt Account (hereinafter referred to as “RDG Account”), directly with the RBI.

Retail investors can open and maintain an RDG Account through an easy-to-use online portal. This portal not only simplifies the account opening process but also provides registered users with crucial services. These include access to the primary issuance of G-Secs and the Negotiated Dealing System – Order Matching (NDS-OM), the RBI’s electronic platform for trading G-Secs.

1. Eligibility Criteria

Retail Investors: Under the scheme, retail investors are allowed to register and maintain a RDG Account if they meet the criteria given below:

• Have a Permanent Account Number (hereinafter referred to as “PAN”) from the Income Tax Department
• Can access the primary issuance of G-Secs
• Possess any Officially Valid Document (hereinafter referred to as “OVD”) for KYC purposes
• Have a valid email address
• Have a registered mobile number

Non-Resident Retail Investors: Those who are not residents and are allowed to invest in G-Secs by the Foreign Exchange Management Act of 1999 are also qualified.

Account Ownership: An RDG account can be opened individually or jointly with another qualifying retail investor.

2. Registration Procedure

Investors can easily register on the online portal by completing the online form and using the OTP sent to their registered mobile number and email to verify and submit their details. The registration process adheres to the RBI-Know Your Customer (KYC) Direction, 2016, and its subsequent updates, ensuring compliance during onboarding. Upon successful registration, a ‘Retail Direct Gilt Account’ will be created, and access details will be communicated via SMS or email. This RDG Account will facilitate both primary market participation and secondary market transactions on the NDS-OM platform.

3. Participation in Primary Market Auctions

In the primary market, Retail Direct Investors participate in auctions for G-Secs, excluding Sovereign Gold Bonds (SGBs), on a non-competitive basis, ensuring fair involvement. During bidding, the Clearing Corporation aggregates non-competitive bids for submission to the RBI. For SGBs, investors can place or withdraw individual bids during the bidding interval, with limits set by the RBI.

Investors must pre-fund each bid based on indicative prices, accrued interest, and a markup, using net-banking/UPI methods. Bids can be submitted before the bidding window closes, and unfunded bids are cancelled. Allotments are based on bid submissions, with partial allotments made proportionately if necessary. Upon settlement, the RDG Account is credited with the allotted securities or SGB units.

Withdrawn bids are refunded, with any excess markup refunded post-allocation, and credited to the investor’s bank account. The Clearing Corporation maintains aggregate balances of all Retail Direct Investors in its CSGL account with the RBI, updating balances for auction allotments and other activities. Regulatory oversight from the RBI and Clearing Corporation ensures the integrity of primary market transactions, with decisions regarding auctions, funding, allotments, and refunds deemed final and binding.

4. Participation in Secondary Market Trading

Retail Direct Investors utilize the NDS-OM for secondary market trading, enabled through the RBI Retail Direct platform. This avenue allows investors to trade G-Secs within the Odd Lot segment, using balances from their RDG Account. Funds for buy orders need to be remitted in advance through services like UPI or net-banking. Trades are processed by the Clearing Corporation, with settlements typically occurring on the next business day.

Orders entered into the NDS-OM are the sole responsibility of the Retail Direct Investor and undergo validations for parameters such as price and time. Rejected orders are notified through the NDS-OM Retail Portal, ensuring transparency in the process. Modifications to orders are possible within prescribed conditions, but modified orders may lose priority.

5. Sell Securities through the Portal

When selling securities, the specified securities will be blocked at the order placement and remain so until the trade is settled. The proceeds from the sale will be credited to the bank account on the settlement day.

6. Investor services Offered through Portal

Registered investors have access to a variety of services through the online portal. They can obtain account statements detailing transaction history and the balance of their securities holdings, with all transaction alerts sent via email or SMS. The portal also offers a nomination facility, allowing investors to designate up to two nominees. In the unfortunate event of the investor’s death, securities in the RDG Account can be transferred to the nominee’s account upon submission of the death certificate and a transmission form.

Additionally, securities held in the RDG Account can be pledged or used as a lien, providing flexibility for investors. The portal also features an option for gift transactions, enabling investors to gift G-Secs to other Retail Direct Investors. For any queries or grievances related to the ‘Retail Direct’ Scheme, investors can raise their concerns on the portal, where they will be addressed by the Public Debt Office (hereinafter referred to as “PDO”) in Mumbai, RBI.

7. Understanding Fees and Charges

Opening and maintaining a ‘Retail Direct Gilt Account’ with the RBI is free of charge. Furthermore, no fees are charged by the aggregator for submitting bids in primary auctions. However, any fees related to payment gateways or similar services will be borne by the registered investor. This fee structure ensures that the process remains accessible and cost-effective for retail investors.

8. Personal Information Management and Account Confidentiality

When engaging with the ‘Retail Direct’ Scheme, retail investors entrust their personal information to the Clearing Corporation, consenting to its handling strictly within the framework of the Scheme and in compliance with relevant laws. This includes the use, disclosure, and transfer of personal data, undertaken with the utmost care to safeguard the trade particulars of investors. The Clearing Corporation may utilize this information for various purposes, such as providing aggregated data or trade-by-trade information, while ensuring confidentiality remains paramount.

Furthermore, , the management of member accounts and the confidentiality of associated credentials are pivotal aspects of Retail Direct. Investors receive their login credentials via registered email, emphasizing the necessity for confidentiality. Clearing Corporation mandates compliance with authentication procedures and password policies, placing the onus on investors for safeguarding their account information. Additionally, the Corporation underscores that minors accessing the Retail Direct Portal must be under guardian supervision, absolving any liability for violations in this context.

9. Procedure for Account Closure by Retail Direct Investor

To close their RDG Account, investors can initiate the process through the Retail Direct Portal, confirming the cessation of all rights associated with the account. If any G-Secs are held in the account, they must be sold or transferred before closure. Upon receipt of the closure request, the RDG Account will be deactivated within three business days, and investors will be formally notified. However, closure may be withheld if it breaches legal or regulatory requirements or if account balances are not reconciled.

10. Policy regarding Account Suspension

The Clearing Corporation reserves the right to suspend or close the RDG Account of a Retail Direct Investor under various circumstances. These include instances where the investor is prohibited from participating on the Retail Direct Portal following written notice and advice from the RBI, voluntary or compulsory insolvency, failure to adhere to specified conditions or criteria, or suspension by regulatory or judicial authorities. Any suspension takes immediate effect and continues until the conditions no longer exist, or the decided suspension period ends, or the account is closed. The Retail Direct Investor will be notified of the suspension, and they may appeal the decision, which the Clearing Corporation will review and may modify accordingly.

11. Ensuring Accessibility for all users

While efforts are made to ensure accessibility to the Retail Direct Portal at all times, the Clearing Corporation does not provide warranties for disruptions due to technical issues. The availability of services is notified on the portal, with windows typically open on all days except as specified. The Clearing Corporation reserves the right to adjust session timings as necessary and disclaims liability for any errors or omissions in the information provided. Additionally, the Retail Direct Investor is solely responsible for their technical capabilities and agrees to the monitoring of their activities on the portal.

12. Role and responsibilities of Distributors

Distributions in the Retail Direct scheme encompass coupon payments and redemption proceeds, ensuring investors receive their entitled earnings promptly. Coupon payments from RBI are calculated based on individual holdings and remitted to investors’ bank accounts. Redemption proceeds are similarly disbursed upon receipt from RBI, with entitlements computed based on specific Government Security holdings. Corporate action details, including coupon distributions and redemption proceeds, are accessible on the Retail Direct Portal, with additional notifications sent to investors registered mobile numbers and email addresses.

13. Accessing Reports and statements

The Retail Direct Portal offers comprehensive access to various reports and statements, providing transparency and accountability. Investors can view their holding balances, transaction histories, and audit trails of activities such as bidding and funding. Periodic RDG holding statements and transaction histories are also provided, ensuring investors have a clear understanding of their investment activities. MIS reports generated by the Clearing Corporation as required by RBI enhance transparency in the system. In case of discrepancies or inconsistencies, investors can notify the Clearing Corporation within seven days for prompt resolution.

SIGNIFICANCE OF THE MOBILE APPLICATION

Introducing a mobile app for direct retail participation in the Government securities market carries significant implications:

1. Democratizing Access: The app provides a user-friendly platform, democratizing access to G-Secs, empowering small investors, salaried individuals, and small traders to directly invest in G-Secs, bypassing traditional intermediaries like banks and mutual funds.
2. 2. Enhancing Financial Literacy: By offering a simplified interface and educational resources, the app promotes financial literacy among retail investors, fostering a better understanding of G-Secs and investment opportunities.
3. Boosting Market Participation: The convenience of trading G-Secs via a mobile app is expected to catalyse increased retail participation in the market, thereby deepening liquidity and broadening the investor base.
4. Strengthening Atmanirbhar Bharat: Facilitating direct retail participation aligns with the vision of Atmanirbhar Bharat (self-reliant India), fostering a more inclusive and resilient financial ecosystem driven by domestic savings and investment.

AMLEGALS REMARKS

The initiatives introduced by the RBI represent a concerted effort towards modernizing regulatory processes, enhancing retail investor participation in Government securities, and fostering innovation within the FinTech sector. By providing a user-friendly platform for retail investors to engage directly with Government securities, the RBI is not only breaking down traditional barriers but also fostering a sense of empowerment and autonomy among individual investors.

This initiative has the potential to revolutionize the investment landscape in India, encouraging broader participation and driving economic growth from the grassroots level. Furthermore, it underscores the RBI’s commitment to leveraging technology for the greater good, setting a benchmark for other regulatory bodies and financial institutions to follow suit in embracing innovation for the benefit of all stakeholders.

– Team AMLEGALS assisted by Mr. Shraddha Jain (Intern)

For any queries or feedback, feel free to reach out to mridusha.guha@amlegals.com or liza.vanjani@amlegals.com