Govt may face hurdles in FY12 borrowing target: RBI

The government could face difficulties in managing its borrowing programme for the current fiscal amid the prevailing tight liquidity conditions as banks hold a higher proportion of government securities, the RBI said.

"Notwithstanding the relatively lower budgeted market borrowings of the central government in 2011-12, managing the borrowing programme would be a challenge in view of tight liquidity conditions and the high level of excess SLR holdings of the banks," the Reserve Bank said in its Annual Report.

Gross government borrowings in the current fiscal (2011-12) are pegged at Rs 4.17 lakh crore, down from Rs 4.37 crore in 2010-11.

Of this, the government is scheduled to borrow Rs 2.50 lakh crore in the first half, as against Rs 2.84 lakh crore in the corresponding April-September period last year.

The tight liquidity conditions would make market borrowing difficult for the government. Also, the private sector might face some problems, as there would be less funds available in the market for them.

Moreover, the higher Statutory Liquidity Ratio (SLR) of banks would restrict them from buying bonds floated by the government.

The apex bank also said that the government's ability to rein in the fiscal deficit would influence the conduct of the market borrowing programme in the current fiscal.

The government has estimated the fiscal deficit target at 4.6% in the current fiscal, down from 4.7% last year.

"The conduct of the market borrowing programme will be influenced by the ability of the government to rein in the fiscal deficit and its financing by way of market borrowings," the report added.