RBI to conduct second OMO purchase of State Development Loans next month

The Reserve Bank of India will conduct the second Open Market Operations (OMOs) purchase of State Developments Loans (SDLs), aggregating Rs 10,000 crore, on November 5, 2020.

The RBI had conducted the first-ever auction under OMOs in SDLs on October 22, 2020.

The response was positive, with securities offered for each state being subscribed to, and at yield spreads over central government securities of equivalent maturity at levels which would foster supportive financing conditions for new primary issuances of SDLs, the RBI said in a statement on Thursday.

"Therefore, it has been decided to conduct another purchase auction of SDLs under Open Market Operations (OMOs) for an aggregate amount of Rs 10,000 crore on November 05, 2020," it said.

The central bank had decided to conduct OMOs in SDLs as a "special case" during the current financial year with an aim to improve liquidity and facilitate efficient pricing.

At present, SDLs are eligible collateral for Liquidity Adjustment Facility (LAF) along with T-bills, dated government securities and oil bonds.

The OMOs will be conducted for a basket of SDLs comprising securities issued by states.The RBI will purchase the SDLs through a multi-security auction, using the multiple price method. The result of the auction will be announced on November 5 itself.