Govt Paper With Put And Call Option Next Week

The first ever government paper with a put and call option will be floated next week. The Reserve Bank of India (RBI) will auction on July 17 a 10-year paper of Rs 3,000 crore with call and put option after five years.

The centre will also auction another Rs 4,000 crore of 8.07 per cent 2017 paper on that day. The RBI's auction calendar did not indicate these auctions but the central bank had to resort to this as the Centre's ways and means advances have crossed the Rs 10,000 crore limit, market sources said. With the twin auction, the government will complete 49.7 per cent of its gross borrowing programme of Rs 1,42,779 crore for fiscal 2003.

In the secondary market, the five-year paper was traded around the 5.75 per cent. The paper with put and call option will enable the central government to reduce its cost of funds if the interest rate goes down further during the years.

Said Kaushik Modak, head, fixed income securities, Kotak Mahindra Capital Company: