Floating Rate Bonds (FRBs) | 18 Nov 2025

Source: ET 

Why in News? 

RBI’s Floating Rate Bonds (FRBs) are witnessing a sharp rise in demand as investors shift from equities, gold, and traditional deposits toward safer, higher-yielding government-backed debt instruments.  

What are RBI’s Floating Rate Bonds (FRBs)? 

  • About: First issued in 1995 in India, RBI’s FRBs are government securities with a variable coupon rate instead of a fixed one.  
    • The rate is reset at pre-announced intervals (typically every 6 months or 1 year) based on a pre-selected benchmark, distinguishing them from traditional fixed-rate bonds.  
  • Eligibility: The bonds are open to individuals (including joint holders) and Hindu Undivided Families (HUFs). 
  • Interest Rate Mechanism: The interest rate on FRBs is tied to a market-based benchmark, typically the average yield of the last three auctions of 182-day Treasury Bills or a base rate plus a fixed spread decided through auction. 
    • In some cases, such as RBI’s retail FRBs, the coupon is linked to the NSC rate, making the returns adjust automatically with changes in broader interest rates. 
  • Significance: FRBs protects investors from interest-rate risk—when rates rise, coupon payment also rises. 
    • It serves as a diversification and hedging tool for portfolios dominated by fixed-rate debt instruments. 

National Savings Certificate (NSC) Scheme 

  • About: NSC Scheme was launched by the Department of Economic Affairs, Ministry of Finance to encourage a culture of long-term savings among individuals.  
  • Tenure and Interest: The scheme has a 5-year maturity period and offers an attractive interest rate of 7.7%, compounded annually. 
  • Eligibility: Any resident Indian can invest under the NSC scheme. Guardians are eligible to apply on behalf of minors (minimum age 10 years) or individuals of unsound mind. 
  • Deposits: Investors can deposit a minimum of Rs 1,000, with subsequent deposits in multiples of Rs 100. There is no maximum limit for deposits, and an individual can open multiple accounts under the scheme. 
  • Additional Benefits: Investors can secure loans by pledging NSC certificates with banks, and the absence of a maximum deposit limit makes it ideal for substantial, long-term savings. 

Frequently Asked Questions (FAQs) 

1. What are RBI Floating Rate Bonds? 
Launched in 2020, these are government-backed, non-cumulative debt instruments with floating interest, repayable after 7 years, providing secure principal and semi-annual interest payments. 

2. Who is eligible to invest in RBI Floating Rate Bonds? 
Individuals (including joint holders) and HUFs are eligible; NRIs cannot invest in these bonds. 

3. What is the National Savings Certificate (NSC) Scheme?
NSC is a 5-year government savings scheme offering 7.7% interest compounded annually, designed to promote long-term savings among residents. 

UPSC Civil Services Examination, Previous Year Question (PYQ)  

Q. What is/are the facility/facilities the beneficiaries can get from the services of Business Correspondent (Bank Saathi) in branchless areas? (2014) 

  1. It enables the beneficiaries to draw their subsidies and social security benefits in their villages.  
  2. It enables the beneficiaries in the rural areas to make deposits and withdrawals. 

Select the correct answer using the code given below: 

(a) 1 only   

(b) 2 only  

(c) Both 1 and 2   

(d) Neither 1 nor 2  

Ans: (c)

Q. In India, the interest rate on savings accounts in all the nationalized commercial banks is fixed by (2010) 

(a) Union Ministry of Finance  

(b) Union Finance Commission  

(c) Indian Banks’ Association  

(d) None of the above  

Ans: (d)