Rbi Aims To Raise Rs 7,000cr Through On-Tap Issues

The Reserve Bank of India has set an internal target of raising Rs 7,000-8,000 crore through the six and ten year central government on-tap issue that opens for subscription today and has pressurised nationalised banks to subscribe to the issue by indicating to each bank the amount it should subscribe for.

It is learnt that the RBI has spoken to the chairmen of major nationalised banks and assigned quotas to each bank, who will have to chip in the indicated amounts to ensure that the on-tap issue successfully goes through.

"With this arrangement in place, the RBI will not find it difficult to raise the amount it has in mind and the issue is likely to close by next week," said sources.

 

At a meeting with bankers on Wednesday, the RBI had also asked banks to wholeheartedly support the issue.

Institutions like the Life Insurance Corporation (LIC) are anyway willing subscribers to the issue as the yield on the ten year paper, at 12.10 per cent is attractive considering that it is in tandem with secondary market yields.

While RBI's arm twisting goes against the principles of a free market, nationalised banks seem to have resigned themselves to the fact that they have no option but to support the government borrowing programme on RBI's terms.

"The yields are a bit low, but we have no other option," said a source with a nationalised bank.

"The current situation is abnormal and pressure from RBI should be viewed against this. On the one hand, banks have surplus funds since credit is not picking up."

" The government on the other is not able to successfully borrow as the market expectations of the yields are different," added another."

" At the latest auction, the RBI had fixed the cut off yield on nine year central government paper at 11.90 per cent, resulting in a 99.95 per cent devolvement on the RBI.

In the dated securities segment yesterday, there was selling witnessed in the long dated maturities, from institutions who had been asked to subscribe at the on tap issue today.