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Informist, Friday, May 30, 2025

 

By Aaryan Khanna

 

NEW DELHI – The finance ministry is proactively looking to address the hump of gilt redemptions in 2026-27 (Apr-Mar) while managing its cash position this fiscal, a senior finance ministry official said on Friday, soon after the announcement of the first gilt buyback for FY26. The government will try to match the market's expectation on the total amount for buyback, the official added.

 

Next week, the government will conduct its first buyback in over four months. It has offered to buy INR 250 billion worth of five gilts maturing in FY27 at the auction Thursday, the Reserve Bank of India said on Friday. Bond market participants expect buybacks to total INR 500 billion-INR 750 billion in the current fiscal year, lower than INR 881.64 billion spent in FY25 on buying back bonds maturing in FY26.

 

When announcing the Apr-Sept borrowing calendar, the finance ministry had said that it would continue with switches and buybacks to smoothen the redemption profile. The government has INR 6.484 trillion worth of gilts maturing in FY27 as of Monday, a record, which it has brought down by nearly INR 600 billion since November through various methods. Redemptions have piled up in the next few years as the debt raised by the government during the COVID-19 pandemic matures, with the scale of the gross borrowing programme doubling between FY20 and FY22.

 

Informist had reported in November, quoting a finance ministry official, that buybacks would be a regular feature in the coming years due to the repayment hump, having made a reappearance after six years in FY25. However, the Union Budget for FY26 presented in February does not account for any spending on buybacks.

 

Bond market traders speculate the size of the buybacks in FY26 will be regulated by the room allowed by the record RBI surplus transfer announced last week. The RBI is set to transfer INR 2.69 trillion to the government as surplus for FY25, while the Budget had pencilled in INR 2.56 trillion as receipts from RBI's surplus transfer and dividends from state-owned financial institutions. Counting the dividends, the government will mop up an extra INR 500 billion on this head, according to bond market traders.

 

When the surplus is transferred to the government, which is expected before the first buyback, it will swell the government's coffers and add to durable liquidity. The INR-250-billion buyback on Thursday will pass on this liquidity to the banking system, helping bring down short-term borrowing costs for both the government and the wider economy, dealers said.

 

Asked about whether the government was mulling a cut in its short-term borrowing through Treasury bills due to the windfall, the finance ministry official Friday said that there were still a lot of uncertainties on how expenditure would pan out in FY25. The government uses T-bills to meet its short-term cash needs. While total expenditure missed the revised target slightly in FY25, capital expenditure rose to a record high in March, and was the third-highest ever in April, data released Friday showed.  End

 

Edited by Deepshikha Bhardwaj

 

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