RBI to buy back Rs 20,000 cr bonds to inject liquidity

The repurchase will be funded from the current account surplus of the government.

The Reserve Bank of India on Wednesday offered to buy back government bonds for up to Rs 20,000 crore to increase liquidity in the banking system. Payments towards advance taxes, licence fees for 3G telecom spectrum and broadband wireless access have taken cash out of the system.

As a first step, the RBI will offer to repurchase bonds for up to Rs 10,000 crore, the central bank said late today. The repurchase will be funded from the current account surplus of the government. There was short-term mismatch in funds, it said.

“The move is looking at addressing liquidity concerns in the market ... It doesn’t necessarily preclude any rate action to tackle the inflation problem,’’ said Krishnamoorthy Harihar, treasurer at FirstRand Bank.

RBI will offer to repurchase 12.25 per cent government bonds maturing in 2010, 11.30 per cent 2010 bonds and 6.57 per cent, 2011 bonds on June 18. RBI will retain the right to vary the amount it may accept, or even reject all offers, it said.

Banks today borrowed about Rs. 27,705 crore through the two repos. Overnight call money rates rose to as high as 5.4 per cent, compared with the 5.25 per cent repo rate for borrowing from the RBI.

The step follows a measure announced on May 27, when the central bank permitted banks to borrow an additional amount up to half a percentage point of their SLR (statutory liquidity ratio) holdings. The measures were to be in effect from May 28 to July 2. The steps were initiated to improve liquidity, as the RBI anticipated pressures on account of the payments mentioned. It also opened a second auction to ensure funds remained available to banks.

The advance payment in the first quarter this year has been higher than the year-ago period. Forty four large companies that account for about 40 per cent of the total market capitalisation of the stocks listed on the Bombay Stock Exchange paid about 19.7 per cent higher advance taxes, or about Rs 7,273 crore, in the first quarter.

The winners of 3G and BWA licences are estimated to pay the government a little over Rs 1,00,000 crore, respectively Rs 68,000 crore and Rs 34,000 crore.

 

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