RBI News update:
On Monday, the Reserve Bank of India (RBI) announced it would repurchase government bonds worth Rs 40,000 crore on Thursday. Bond market participants predict limited demand for the third buyback auction, as banks might be unwilling to sell bonds at a loss. They estimate banks may sell only Rs 5,000 crore to Rs 10,000 crore worth of securities against the notified amount.
V R C Reddy, head of treasury at Karur Vysya Bank, noted that the RBI had previously offered to buy back the same securities. “The price at which banks acquired these securities remains unchanged. Participation will likely be low unless they agree to a 2-3 basis point yield reduction from the market price,” Reddy said. Bond prices and yields move inversely.
The government plans to repurchase the 7.35% bond maturing on June 22, 2024, the 8.4% bond maturing on July 28, 2024, the FRB bond maturing on November 7, 2024, and the 9.15% bond maturing on November 14, 2024. The previous two auctions on May 16 and May 21 saw low participation, with the RBI repurchasing Rs 2,069 crore and Rs 10,512 crore worth of bonds against notified amounts of Rs 60,000 crore and Rs 40,000 crore, respectively. Prior to these, the last buyback auctions were conducted in 2018.
By repurchasing its bonds before maturity, the government reduces its liabilities and strengthens its fiscal position. This involves using government funds to buy back these bonds, typically retiring them to decrease the total outstanding debt. This strategy helps improve the government’s debt profile by repurchasing higher-cost or shorter-term bonds.
“They (the RBI) are adjusting this financial year’s borrowing programme, hence they haven’t targeted any security maturing in the next financial year or beyond,” said a treasury head at a private bank. On Friday, the RBI will sell Rs 29,000 crore worth of government securities at the weekly auction, including Rs 6,000 crore worth of 10-year green bonds.
Contrary to the usual practice of issuing green bonds later in the year, the government plans to issue Rs 12,000 crore worth of green bonds in the first half of the current financial year, in two tranches of Rs 6,000 crore each for a period of 10 years. Additionally, the RBI will issue new five-year bonds worth Rs 12,000 crore and 40-year bonds worth Rs 11,000 crore.
