RBI may fix underwriting fee at 4 paise

The Reserve Bank of India (RBI) may set a commission of 4 paise for primary dealers (PD) underwriting Friday’s Rs 6,000-crore auction of the 7.02 per cent, 2016 government bond, a NewsWire18 poll of seven primary dealers showed today. Along with the 2016 paper, the central bank will also auction Rs 4,000 crore of the 7.94 per cent, 2021 bond and Rs 2,000 crore of 8.28 per cent, 2032 bond.

For underwriting the 2021 bond tender, primary dealers expect a commission of 14 paise and a fee of 15 paise for underwriting the 2032 bond issue. Primary dealers will get a commission for every Rs 100 of bonds underwritten.

“Chances of a devolvement on the 2021 bond are high as people fear illiquidity creeping into this bond once the outstanding (amount) crosses over Rs 50,000 crore,” said a trader with a primary dealership.

This fear is based on the view that RBI refrains from reissuing a bond after the outstanding amount crosses Rs 50,000 crore to avoid repayment issues on maturity date.

The 2032 bond auction is not expected to pose any problem as the quantum of the tender is quite small. “My personal opinion is that the 2032 tender will not fail at current levels as the quantum is also less,” said a dealer with one of the country’s large insurers.

In the secondary market, the 2016 bond was dealt at Rs 99.48, the 2021 bond was being traded at Rs 101.65, and the 2032 bond was being offered at Rs 102.25.