Notified Sum On 14-, 91-Day Bills Raised To Absorb Excess Liquidity

In what can be construed as the first step toward reviving the treasury bills market and mopping up surplus liquidity, the Reserve Bank of India yesterday hiked the notified amount at the auction of 14-day and 91-day treasury bills.

Players expect that this move will be logically followed by a hike in the notified amount on 364-day treasury bills as well. If the central bank does not hike the yield on the annual paper, there will be a devolvement as has been the case in the current fiscal.

Hence dealers expect that part of the RBI strategy will be to hike the cut-off yields in the context of the fact that the primary market cut-off yields are out of sync with that of secondary market yields.

 

Till date, the apex bank has kept the notified amount on 14-day and 91-day treasury bills fixed at Rs 100 crore, respectively. At the auction to be held today, the notified amount on 14-day treasury bills and 91-day treasury bills has been fixed at Rs 300 crore and Rs 150 crore, respectively.

The RBI has been offering 7.35 per cent for 91-day money while rejecting bids from primary dealers who have sought a yield of 7.50 per cent. The central bank has held steadfast not offering more than 8 per cent on 364-day treasury bills and opted to take a devolvement rather than offer a higher yield. On the contrary, it has effected a increase in the yield of dated securities across the board in this fiscal.

In this fiscal, in the primary market the coupon on a 5-year paper has increased from 11.10 per cent to 11.75 per cent; that on a 6-year paper by 25 basis points to 11.75 per cent; and, on a 10-year paper by 10 basis points to 12.10 per cent. Now the central bank is expected to hike the yield on treasury bills and mop up surplus funds and thereby reduce the dependence of banks on repos.

If in line with these expectations, the central bank does increase the resource mobilisation through 364-day treasury bills, it would partially offset the dependence on dated securities.