Not shaken or stirred to raise ₹2 lkh cr via one bond

Synopsis

After its last auction in the primary market on January 19, the outstanding amount on a bond maturing in 2063, has risen to ₹2.04 lakh crore, Reserve Bank of India (RBI) data showed. The outstanding amount refers to the amount the government has borrowed by issuing a bond.

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The RBI said in 2022 that it will review its medium-term debt management strategy.

Mumbai: India’s government bond market has witnessed a first, with the outstanding amount on a single sovereign security breaching the ₹2-lakh-crore mark, demonstrating the finance ministry’s tolerance for a much higher borrowing limit through one bond series than what applied to the earlier threshold.

After its last auction in the primary market on January 19, the outstanding amount on a bond maturing in 2063, has risen to ₹2.04 lakh crore, Reserve Bank of India (RBI) data showed. The outstanding amount refers to the amount the government has borrowed by issuing a bond.

Investors receive the principal amount on maturity of a paper while also receiving periodic interest payments throughout the life of a bond.

As of January 23, the total outstanding amount for all central government bonds was at ₹101.9 lakh crore, the latest central bank data showed.

So far, the finance ministry and the Reserve Bank of India broadly capped the government’s borrowing through a single security at around ₹1.50 lakh crore to ₹1.58 lakh crore.

The RBI is the central government’s debt manager.

“Ideally, the threshold for a single security has to be a variable number. The per security outstanding threshold (that is currently assumed to be around ₹ 1.5 lakh crore) – will keep increasing over time with an increase in the size of the economy and the overall level of debt,” said Vivek Kumar, economist, QuantEco Research.

Not only has the previous threshold been crossed for the 2063 bond but also for the 10-year benchmark government security, which currently has an outstanding amount of ₹ 1.69 lakh crore. This is the highest outstanding amount for any 10-year benchmark bond.

Amid market speculation of the RBI introducing a new 10-year government bond once the outstanding amount crossed the ₹ 1.5 lakh crore mark, the central bank has continued to conduct auctions of the current benchmark paper.

Govt Borrowings Via a Single Bond Top ₹2-L CrAgencies

According to analysts, the RBI and the government have maintained thresholds for borrowing through single securities in order to prevent bunched-up repayment pressures when bonds come up for maturity.

In its Debt Management Strategy, released in 2015, the RBI said that one of its aims was to continue passive consolidation through large benchmark issuances and explore active consolidation through switch and buyback operations.

The RBI said in 2022 that it will review its medium-term debt management strategy.

A buyback operation refers to one where the government redeems bonds before their maturity. In a switch operation, the government issues longer tenure bonds in lieu of bonds maturing in the near term. Both measures help the government to smoothly manage its repayment obligations.

Such steps have assumed greater significance as the next couple of years have large maturities of government bonds lined up – ₹3.61 lakh crore for FY25 and ₹5.26 lakh crore for FY26. The huge redemptions exert upward pressure on the government’s gross borrowing. The gross borrowings for a particular year account for bond maturity repayments to be made that year.

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William Murphy

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