Crr Cut Spurs Oversubscription Of 10.47% Paper

The 10.47 per cent 2015 paper was oversubscribed by more than 161 per cent today. The Reserve Bank of India (RBI) received 320 bids of Rs 11,257.746 crore, of which it accepted only 108 bids of Rs 4,000 crore. The cut-off price for the auction was set at Rs 102.02.

The success of the auction is in sharp contrast with the tight liquidity scenario in the market which has kept the overnight rates in the region of 8.50 per cent to 9.50 per cent. Prices in the government security market remained range-bound due to the strained liquidity condition.

Dealers said the announcement of a cut in the cash reserve ratio (CRR) by 50 basis points, effective May 19, was the main reason for the auction to be successful. A dealer said, "as Rs 4,500 crore will come into the system on May 19, players dared to bid in the auction."

Dealers said the cut-off price for the auction was also higher than expectations. The central bank pegged the cut-off rate at Rs 102.02 (estimated yield) against the expectation of Rs 101.80 -85. The paper was dealt at a price of Rs 101.90-97 in the secondary market today. The RBI, earlier, set the cut-off price for the underwriting commission at 2 paise.

With today's auction, the RBI has completed more than 41 per cent of the gross government borrowing programme of Rs 1,19,770 crore. Analysts, however, feel the government is likely to overshoot the targeted borrowing programme due to the huge shortfall in taxation.

An analyst with an investment bank said: "Given the aggressive auction conducted by the central bank so far in this fiscal, and the possibility of a huge shortfall in the auction, we feel that the RBI is likely to keep the government security market with frequent auctions."