RBI announces bond buyback

The Reserve Bank of India (RBI) on Wednesday said it would buy Rs 10,000 crore of government bonds next week. It said the step was being taken because of the current liquidity conditions. However, RBI is yet to announce the securities to be bought back.

Banks have been borrowing around Rs 1 lakh crore from RBI’s repo window, while yields on 10-year benchmark bonds have been close to nine per cent since the last few days. Today, banks borrowed Rs 1.04 lakh crore from the repo window, and did not park any funds through the reverse repo window.

Markets were expecting some support from RBI. “It is on expected lines, since even banks were falling short of soaking in the excess supply of government bonds,” said a treasury official of a large public sector bank. Banks, the largest buyers of government debt, are already sitting on a higher-than-required statutory liquidity ratio (SLR), which is 24 per cent of net demand and time liabilities. In the absence of credit growth, the robust growth in deposits led to banks investing more in SLR securities. There has been devolvement on primary dealers in most bond auctions, while all bids in an auction were rejected in the second half of the current financial year. In the second half, the government would borrow Rs 52,800 crore more than planned earlier.

“The open market operation would be conducted through a multi-security auction, using the multiple price method,” RBI said in a statement released after market hours on Wednesday. The auction for the bond buyback would be conducted on November 24.

According to the issuance calendar, RBI is scheduled to auction Rs 65,000 crore in November. Yields on the 10-year benchmark government bond closed at 8.88 per cent on Wednesday, owing to heightened expectations that RBI would announce some measures.