Special-series bonds could be over 10% of FY21 gross borrowing target

Amount of debut issue and subsequent tranches will be finalised by FinMin, RBI in end-March

India is planning a massive debut issue of special-series government bonds, upwards of Rs 10,000 crore, in the first half of 2020-21. This will be followed by multiple tranches, which could combine to be more than 10 per cent (Rs 80,000 crore) of the FY21 gross borrowing estimate of Rs 8.1 trillion, helping India get a substantial weight after its inclusion in global bond indices. 

“The Finance Ministry’s view is that the share of special-series bonds in a year should be more than 10 per cent of the total borrowing requirements. The amount of the debut tranche and subsequent tranches will be decided by the Reserve Bank (RBI) in consultations with the government,” a top official told Business Standard. 

The details of the debut and subsequent tranches will be finalised by the time the Finance Ministry and the RBI announce the April-September borrowing calendar in end-March.

As reported earlier, the Centre will issue a special series of G-Secs, which won’t have any limit for foreign portfolio investors. This will be a precursor to get Indian G-Secs included in global bond indices in a bid to attract foreign capital. The foreign portfolio investor limit on G-Secs stands at 6 per cent. 

The plan was spelt out by Finance Minister Nirmala Sitharaman in her 2020-21 Union Budget speech. “Certain specified categories of government securities would be opened fully for non-resident investors, apart from being available to domestic investors,” Sitharaman had said.

Some of the global bond indices that could embrace Indian G-Secs, if all the conditions are met, include the Bloomberg Barclays Global Aggregate Index, FTSE Russel Asia Pacific Government Bond Index, JP Morgan Government Bond Index-Emerging Markets, and others. 

“These indices have conditions which favour scale and size. For example, each issuance should be $400 million at least, and the total quantum of the bonds should be at least $5 billion. For us that is doable,” said a second official aware of deliberations regarding the instruments. Ten per cent of the FY21 borrowing target equates $11 billion. 

Finance ministry officials have had a number of meetings with the RBI as well as the administrators of global bond indices. Over the coming weeks, there will be meetings with investment banks who may act as potential market makers for the bonds, a second official said. 

Government officials as well as bond market analysts said that being part of global bond indices will help the Indian G-Secs attract large funds from major global investors, including pension funds.

A large number of bond investors, including global pension funds, are passive investors, in that they just follow what is in the benchmark indices. So, once the central government’s G-secs are included in these indices, officials expect a chunk of foreign liquidity to come in.