Rs 987cr Devolution In Five-Year Paper

A dated government paper devolved on the Reserve Bank of India (RBI) for the first time in the current fiscal, indicating expectations of higher yields. The Rs 3,000 crore five-year central government paper auctioned yesterday devolved by Rs 986.98 crore after it was decided to keep the cut-off at 12.69 per cent.

The weighted average yield was lower at 12.61 per cent. While the RBI picked up Rs 884.33 crore, the devolvement on the primary dealers was to the extent of Rs 102.65 crore.

Money market dealers said the yields on bids tendered by the banks ranged from 12.55 per cent to 12.80 per cent. The devolvement on the RBI will not necessarily lead to higher monetisation because the RBI has sold a huge chunk of its portfolio as part of its open market operations.

 

The RBI decision to peg the yield at below-market rates has clear indications of interest rates. The RBI had reportedly advised the banks not to base their expectations on the prevailing call rates. The call rates had shot up to 10 per cent after the RBI mopped up over Rs 5,300 crore at the sale of 10-year state government paper.

It appears that the RBIs advice has not made much difference. The money market is now waiting for the RBI to place this security on its sale list. The RBI is yet to put out the 13.05 per cent 2007, which was privately placed by the government, on the sale list.

The RBI retained the cut-off on the 91-day treasury bill at 6.22 per cent. The issue devolved to the extent of Rs 45 crore, with the RBI picking up Rs 38.88 crore and the primary dealers Rs 6.12 crore.

The RBI received six competitive bids aggregating Rs 52 crore and one non-competitive bid for Rs 100 crore. Only one competitive bid for Rs 5 crore was accepted.

At the repo auction yesterday, the RBI rejected all the three bids aggregating Rs 2,000 crore. The significance of the repo auction has been minimised with calls ruling at 9 per cent and three-day money available at 6 to 8 per cent.