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Informist, Monday, Feb. 3, 2025

 

--Econ secy: Bilateral gilt switches with RBI not part of FY26 target

--CONTEXT: FY26 Budget target for gilt switches set at INR 2.5 tln

--Econ secy:Idea isn't to just switch gilts with RBI through bilateral deals

--Econ secy: Don't want to interfere with RBI's intended use of bonds it has

--Econ secy:To meet with RBI March last week to take call on Apr-Sept borrow

 

By Sagar Sen and Krity Ambey

 

NEW DELHI – The Budget estimate of gilt switch operations for 2025-26 (Apr-Mar) does not factor in any bilateral debt swap with the Reserve Bank of India, Economic Affairs Secretary Ajay Seth has said, adding that the Indian government will treat bonds held by the central bank as all other redemptions.

 

Of the INR 3.28 trillion worth of gilts scheduled to mature next year, around INR 1 trillion worth of papers currently reside on the RBI's books, according to market estimates.

 

"The government stance is not that RBI should hold those gilts. They ended up there for a particular reason," Seth told Informist on Sunday. "Idea is that market should be holding it up. So, in the normal course, to that extent, there will be issuance in the market. Whether the market has the ability to absorb it or not, it has to be assessed...so idea is not just switch over with RBI through a bilateral deal."

 

The economic affairs secretary's comments suggest a departure from the earlier practice of the government conducting large-scale switch operations directly with the central bank. These operations allow the government to retire maturing debt while directly placing long-term bonds with the RBI. The government has conducted such switches on multiple occasions in the past, helping it reduce its gross borrowing as the repayment of bonds held with RBI does not have to be financed through the borrowing programme. The last time such a switch was conducted was in January 2023, when the government bought back INR 226.10 billion of the 6.18%, 2024 bond from the RBI and in return issued INR 210.26 billion of the 8.28%, 2032 gilt.

 

The government currently conducts bond switches in the open market through auctions on the third Monday of each month.

 

The Budget for FY26, presented in Parliament on Saturday, pegged the government's gross market borrowing for next financial year at INR 14.82 trillion, while targeting INR 2.50 trillion worth of switch operations.

 

Seth also said the government does not want to interfere with the RBI's intended use of its bond holdings and would rather allow market forces to play out. "RBI holds those bonds for their liquidity management in the market. So we do not want to make an assumption based on that particular activity. They're holding it up. Banks at some point of time may require money or they may require to park their money with RBI. Now, whatever operation, whether we do it with banks or the RBI, the yields get factored in."

 

Seth added the issuances programme will be reviewed when the government decides its borrowing calendar for Apr-Sep, likely towards the end of next month.

 

"So various options are there. But those options are seen closely when we announce the half-yearly calendar. In the last week of March, we will again sit down with RBI and see what the position is and then take a call."  End

 

Edited by Avishek Dutta

 

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