Centre's H2 borrowing likely to stay in line with budgeted amount

May borrow around Rs 6.3 trillion during the period

The central government’s borrowing is expected to remain in line with the budgeted amount, with slight adjustments in the distribution across tenures, according to bond market participants. Earlier, there were expectations of a reduction in the supply of dated securities. However, due to strong demand across various tenures, dealers now expect the government to adhere to its Budget Estimates (BE). Any necessary adjustments in borrowing are expected to occur primarily through Treasury bills (T-bills), they said.

“The central government securities borrowing will be more or less the same because the demand is across all sectors. Liquidity coverage ratio-related demand is present in the front end of the curve, which is three to five years. Demand from foreign portfolio investors is for the five- to 10-year range, while retirement funds and insurance companies are focused on tenures beyond 10 years. Essentially, I don’t think they will tinker around too much. They may slightly reduce borrowing at the longer end and increase it at the front end,” said Vikas Goel, managing director and chief executive officer, PNB Gilts.

According to BE, the central government is expected to borrow around Rs 6.3 trillion in the second half of the financial year (2024-25/FY25). Despite subdued demand in the first half (H1), bond market participants expect the government to continue issuing green bonds.

States and Union Territories (UTs) are expected to unveil a borrowing calendar of Rs 2.7-2.8 trillion for the third quarter of the current financial year, according to bond market participants.

The Union Budget for FY25 pegged net borrowing through Treasury bills at Rs 50,000 crore. States were projected to have a gross borrowing of Rs 10 trillion, with repayments amounting to Rs 3.2 trillion, resulting in a net borrowing estimate of Rs 6.9 trillion.

In the first quarter (Q1) of FY25, states borrowed 44 per cent of the scheduled amount. By September 13, states and UTs had borrowed Rs 3.3 trillion, compared to the planned Rs 5.1 trillion for H1FY25.

Meanwhile, the Reserve Bank of India reduced T-bill issuances by Rs 60,000 crore in Q1, followed by an additional Rs 80,000 crore reduction in the second quarter.

“We expect the states and UTs borrowing calendar to amount to Rs 2.7 trillion,” said Gaura Sengupta, economist, IDFC First Bank. “They have already tempered a cut via the T-bills and are not expecting a cut in the H2 calendar because they would like to retain flexibility. If government expenditure allows for some savings, which is possible given that it is a truncated year, it will be better to retain that flexibility and make any first cut in the final quarter,” she added.