RBI's allows T-bills auctions to get subscribed partially, signals discomfort on high rates

The notified amount for the auction was Rs 8,000 cr, of which RBI accepted bids worth Rs 4,417 cr

The Reserve Bank of India (RBI) has expressed  discomfort with high short-term rates, evident from the fact that it allowed a three-month treasury bills (T-bills) auction to get subscribed partially, as traders demanded a higher yield (at a cheaper price).

The notified amount for the auction was Rs 8,000 crore, of which RBI accepted bids worth Rs 4,417 crore. The cut-off rate was set at 8.27 per cent.

“Since liquidity is tight, banks would have wanted the T-bills at higher yields, which RBI was not ready to give, as a result of which the auction got subscribed partially,” said Anoop Verma, vice-president for treasury at Development Credit Bank.

Liquidity is tight, as evident from the fact that call money rates inched up to as high as 8.75 per cent on Wednesday. The weighted average rate was 7.93 per cent from Clearing Corporation of India data. In the past on several occasions, RBI had said it wanted call money rates to hug the repo rate, which is now at 7.75 per cent.

“For 182-day (T-bills), RBI might be ready to pay 8.25 per cent but for 91-day (bills), they are not ready to pay more than 8.27 per cent. This could indicate a repo rate cut in the next three months, due to which paying over 8.27 per cent will be a costly proposition for the government,” said the head of treasury of a private  bank.

This is the second time in 2015 when RBI allowed a partial subscription of T-bills. The first auction was on January 21 and on that day, too, the 91-day T-bill auction was partially subscribed.

“This can also be seen as a liquidity management strategy. Selling T-bills drains out liquidity and by allowing the auction to partially subscribe, it means liquidity will be available with the banks,” said a senior treasury official of another private bank.

In fact, on Saturday, RBI decided to offer funds to banks for two days through its Marginal Standing Facility to smoothen liquidity worries, which had got tighter due to outflows on account of tax. Saturday's call money rates had climbed to 25 per cent when the weighted average stood at 11.13 per cent.