Non-competitive bidding
Also written NCB · Non-Competitive Bidding (NCB)
Bidding in RBI's government securities auctions without quoting a price or yield — the bidder is allotted at the weighted average price or yield that emerges from the competitive bids.
In plain language
Government securities are sold by the RBI through auctions. Banks and primary dealers bid a price or yield — that is competitive bidding, and it needs expertise and special accounts with the RBI.
Everyone else can take the simpler road: bid an amount without naming a price, and accept whatever the auction produces. That is non-competitive bidding. The bidder receives securities at the weighted average price or yield of the competitive bids, which means a small investor gets essentially the same terms as the big institutions without having to out-guess them.
How it works
Who bids how (section 3.16.1):
| Competitive | Non-competitive | |
|---|---|---|
| Open to | Banks and primary dealers maintaining a current account and SGL account with the RBI | Investors without those facilities or the technical expertise — co-operative banks, NBFCs, mutual funds, pension funds, companies, and retail investors |
| Quotes | A price or yield | Only an amount |
| Allotted at | Their own accepted bid | The weighted average price or yield of the competitive bids |
The auction calendar. RBI typically announces a calendar every six months; Chapter 2 describes it as a half-yearly issuance calendar showing amounts, tenors and approximate timing.
Retail access through stock exchanges. Under an RBI circular of 23 November 2017, retail investors can bid non-competitively in government securities and treasury bill auctions through a stock exchange. Brokers enter bids till the specified cut-off time on the auction day; the exchange aggregates them and submits one consolidated non-competitive bid; after RBI allots, the exchange makes the investor-wise allocation.
A worked example
Illustrative auction. RBI auctions Rs 10,000 crore of a 10-year government security. The competitive bids it accepts:
| Yield bid | Amount accepted |
|---|---|
| 7.10% | Rs 2,000 crore |
| 7.12% | Rs 3,000 crore |
| 7.15% | Rs 5,000 crore |
Weighted average yield = (2,000 × 7.10 + 3,000 × 7.12 + 5,000 × 7.15) ÷ 10,000
= (14,200 + 21,360 + 35,750) ÷ 10,000
= 7.131%
Suresh, a retired teacher, places a non-competitive bid for Rs 2 lakh through his broker before the cut-off time. The exchange adds his bid to thousands of others and submits one consolidated bid. He is allotted at the weighted average — about 7.13 per cent.
He did not have to guess. A bank that bid too aggressively at 7.10 per cent earns less than Suresh; one that bid 7.20 per cent would not have been allotted at all.
Why NISM asks about it
Chapter 3 (Primary Markets), section 3.16.1 on the process of issue for government securities, with the retail access route through exchanges. Chapter 2 describes G-secs and treasury bills and the auction calendar. Questions ask who may bid competitively, at what price non-competitive bidders are allotted, and how retail investors reach the auction.
Common exam traps
- Non-competitive bidders are allotted at the weighted average price or yield of the competitive bids — not at the highest accepted yield, and not at a price they choose.
- Competitive bidding needs a current account and SGL account with the RBI — which is why it is limited to banks and primary dealers.
- Retail bids through an exchange are consolidated into a single bid by the exchange; the exchange then allocates to each investor.
- Government securities are issued by RBI, not SEBI, and their primary issue is governed by the Government Securities Act, 2006 and Regulations, 2007.
- Mutual funds and NBFCs are named among the non-competitive participants in the workbook — "institutional" does not automatically mean competitive.
Where this is taught
Free preparation for NISM Series IVRelated terms
- Yield to MaturityThe single discount rate at which a bond's future coupons and redemption amount add up to exactly its market price today — the return you actually earn if you hold it to maturity.
- Treasury BillA short-term Government of India debt instrument issued at a discount in tenors of 91, 182 or 364 days; it pays no interest, and the gain on redemption is taxed as a short-term capital gain.
- Coupon rateThe rate of interest a bond pays, applied to its face value and never to its market price — which is why the coupon tells you the cash flow but not the return.
- Primary DealerAn entity licensed by the RBI to underwrite government securities, bid in RBI auctions and resell the securities in the secondary market — the one issue intermediary not registered with SEBI.