RBI’s bond buyback
The RBI repurchased only ₹2,069 crore of government bonds from a notified amount of ₹60,000 crore, as banks were unwilling to sell the securities at a loss.
The central bank’s second attempt to infuse liquidity had limited success, with banks purchasing securities at the auction at higher prices. The government offered to buy back three securities: two maturing in six months and one in eight months. In a previous auction on May 9, the RBI accepted bids worth ₹10,512.99 crore out of ₹40,000 crore worth of bonds offered for buyback.
The RBI accepted bids only at Financial Benchmarks India Private Limited (FBIL) levels. FBIL, regulated by the RBI, administers financial benchmarks, including interest rate benchmarks, which serve as reference rates for financial products like loans, bonds, and derivatives.
The securities offered were 6.18% GS 2024, 9.15% GS 2024, and 6.89% GS 2025, maturing on November 4, November 14, and January 16, respectively. The central bank received 24 offers worth ₹26,877.161 crore for the 6.18% GS securities but accepted only six offers worth ₹552.999 crore at a cut-off price of ₹99.61. It received 12 offers worth ₹6,479.791 crore for the 9.15% GS and accepted two offers worth ₹1,513 crore at a cut-off price of ₹100.98.
“Overall participation in these securities is low as holdings are at higher costs,” said VRC Reddy, treasury head at Karur Vysya Bank.
The central bank could accept the higher prices demanded by banks to infuse cash into the banking system, but this would significantly lower yields for these papers. According to a dealer from a private bank quoted in a Reuters report, this indicates that the RBI is not comfortable with yields front-running monetary policy actions, hence the rejection of most bids.
