Rs 5,000 Crore Special Paper To Be Converted Into 10-Yr Gilts

The RBI has converted Rs 5,000 crore of the Rs 1,06,000 crore outstanding special securities into 13.05 per cent 10-year Government of India (GoI) stock maturing in year 2007. This indicates a willingness to redeem securities that are perpetual in nature. Earlier, the outstanding ad hoc T-bills at the end of every year were converted into special securities carrying an interest rate of 4.6 per cent. Since these securities were perpetual in nature, the government only had to pay interest and not repay the principal.

The special securities held by RBI post-conversion are down to Rs 1,01,000 crore. However, the conversion means a higher interest burden. There will be no effect on money supply as the conversion is only a book entry.

The current secondary market yield on 10-year paper is 12.81 per cent. Market sources say pegging the interest at 13.05 per cent will create a definite price band for securities and help pricing securities in the pipeline in the intermediary band.