RBI’s G-Sec buyback provides in May even see tepid response

The Reserve Financial institution of India (RBI) has obtained a tepid response to its authorities bond buyback provides all through Could, highlighting a disconnect between the central financial institution’s intentions and market sentiment.

The buyback provides had been introduced within the backdrop of the federal government’s stable money place (April 2024 web GST collections had been at ₹1.92-lakh crore). This coupled with dividend declaration by RBI could have prompted it to go in for buyback of G-Secs. In a bid to proactively handle its debt and alleviate future compensation burdens, the federal government aimed to utilise its money surplus to retire a few of its debt forward of schedule.

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Nonetheless, the market’s reception has been lukewarm. The RBI had deliberate to repurchase ₹2-lakh crore price of bonds in Could, however the precise acceptance fell drastically quick. Solely roughly ₹23,000 crore or 11.5 per cent of the whole providing, was accepted, reflecting the subdued curiosity.

Lacklustre curiosity

Market analysts observe that traders favor a discount in short-term invoice issuance as a extra engaging different to the buybacks, particularly given the present lackluster curiosity. Banks are reluctant to promote their holdings at a loss, having bought these securities at increased costs beforehand. Consequently, they goal to promote bonds at elevated costs or diminished yields to maximise earnings, resulting in minimal participation within the buybacks.

The primary buyback held on Could 9 noticed the RBI repurchasing authorities bonds price practically ₹10,513 crore in opposition to the notified quantity of ₹40,000 crore. Equally, within the second buyback on Could 16, the RBI accepted bids price solely ₹2,069.99 crore in opposition to the notified quantity of ₹60,000 crore. The shortage of enthusiasm continued in subsequent buybacks, with the public sale on Could 21 additionally seeing low participation, the place ₹10,512 crore price of bonds had been repurchased in opposition to the identical notified quantity. The newest public sale on Could 30 for ₹40,000 crore concluded with RBI accepting provides for ₹5,111 crore.

Bond market merchants attribute this tepid response to the banks’ hesitation to incur losses on securities purchased at increased costs. Because the RBI navigates these challenges, the federal government might want to rethink its technique to effectively handle its debt and market operations, stated specialists.