UPSC Prelims 2021 Q13: Indian Economy – Financial Markets & Capital Markets
With reference to India, consider the following statements :
1. Retail investors through demat account can invest in 'Treasury Bills' and 'Government of India
Debt Bonds' in primary market.
2. The 'Negotiated Dealing System - Order Matching' is a government securities trading platform
of the Reserve Bank of India.
3. The 'Central Depository Services Ltd.' is jointly promoted by the Reserve Bank of India and the
Bombay Stock Exchange.
Which of the statements given above is/are correct?
- (a) 1 only
- (b) 1 and 2
- (c) 3 only
- (d) 2 and 3
Answer: (b) 1 and 2
Explanation
Retail investors, NDS-OM and CDSL
| Statement | Verdict | Fact |
|---|---|---|
| 1. Retail investors through demat account can invest in 'Treasury Bills' and 'Government of India Debt Bonds' in primary market | Correct | They can bid in primary auctions through non-competitive bidding, placed through stock exchanges using a demat account |
| 2. The 'Negotiated Dealing System - Order Matching' is a government securities trading platform of the Reserve Bank of India | Correct | NDS-OM is owned by the RBI; it is a screen-based, anonymous platform for trading government securities, started in 2005 |
| 3. The 'Central Depository Services Ltd.' is jointly promoted by the Reserve Bank of India and the Bombay Stock Exchange | Incorrect | CDSL was promoted by the BSE along with banks; the RBI is not a promoter |
The two depositories:
| Depository | Set up | Promoted by |
|---|---|---|
| NSDL | 1996 | IDBI, UTI and the National Stock Exchange |
| CDSL | 1999 | Bombay Stock Exchange with leading banks |
Also note: the RBI Retail Direct scheme of November 2021 lets individuals open a gilt account directly with the RBI.
Answer: (b) 1 and 2.
Why each option is right or wrong
- (a) Incorrect. Statement 2 is also true; NDS-OM is the RBI's trading platform.
- (b) CORRECT. Retail investors can buy in the primary market, and NDS-OM belongs to the RBI.
- (c) Incorrect. Statement 3 is false; the RBI is not a promoter of CDSL.
- (d) Incorrect. Statement 3 is false, and Statement 1, which is true, is left out.
Key point
Retail: non-competitive bidding in G-sec and T-bill auctions via demat. NDS-OM: RBI's G-sec trading platform (2005). CDSL: BSE and banks (1999). NSDL: IDBI, UTI, NSE (1996).
Remember
CDSL = BSE. NSDL = NSE. NDS-OM = RBI.
Common mistakes
- Assuming the primary market in government securities is closed to retail investors.
- Adding the RBI as a promoter of CDSL because it regulates banks.
- Confusing CDSL (BSE) with NSDL (NSE).
Exam tip
The RBI regulates; it does not promote depositories. Depositories come under SEBI.
Sources
- Reserve Bank of India — Government Securities Market in India: A Primer (FAQs)
- Central Depository Services (India) Ltd. — About CDSL (promoters and shareholders)