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Informist, Tuesday, Feb. 17, 2026

 

--Dealers: RBI asked banks about feasability of more gilt switches with mkt

--Dealers: RBI asked banks about feasability of more gilt switches in FY26

--Dealers: RBI sought mkt feedback on which bonds to switch with mkt in FY26 
--Dealers: RBI, govt aim to bring down FY27 gross borrowing through switch 
 

By Aaryan Khanna

 

NEW DELHI – The Reserve Bank of India has asked banks about the feasibility of conducting more auctions to switch government bonds in the remainder of the financial year 2025-26 (Apr-Mar), according to bond dealers with direct knowledge of the matter. The central bank also sought feedback from the banks on which bonds to include in the auctions, they said.

 

A switch operation entails replacing a security maturing in the near term with a longer-maturity paper, effectively postponing the government's debt repayment. The RBI last week bilaterally switched four gilts maturing in FY27 worth INR 755.04 billion. The switch will effectively bring down the record INR 17.20 billion gross market borrowing target the government announced in the Union Budget for FY27 on Feb. 1, as the Centre's scheduled repayments fall.

 

"They (the RBI) have asked us and other banks whether it is possible to do more switch auctions," one of the people said. "Though the switch auction usually takes place on the third Monday (of the month), this time they may do it next Monday or in March, because they want to bring down the (gross) borrowing next (financial) year."

 

The RBI and the government have not announced or conducted gilt switch auctions in January or so far in February. Before the Budget, the government had switched short-term bonds worth INR 1.27 trillion through auctions to market participants in Apr-Dec. It had also conducted a bilateral switch of two bonds worth INR 373 billion maturing in FY27 with the RBI in May, bringing the total to INR 1.64 trillion in FY26, the same as the revised estimate for gilt switches for the year.

 

Including last week's bilateral switch, total gilt switches in FY26 have risen to INR 2.40 trillion. With the bilateral switch, the government's projected gross market borrowing in FY27 could fall to INR 16.44 trillion from the budgeted INR 17.20 trillion. If the government switches more gilts maturing in FY27, gross market borrowing could fall further.

 

Economics Affairs Secretary Anuradha Thakur had said on Feb. 1 that the government's record gross market borrowing was not "on the higher side" and that the Centre had a plan to manage it. Thakur had said the government would decide on gilt switches, including with the RBI, and buybacks to lower the borrowing burden closer to the redemption of those bonds. A day after the announcement of the record gross market borrowing in FY27, the 10-year benchmark gilt yield rose 7 basis points to record its worst session in nearly six months and hit its highest level in over 12 months at 6.78%.

 

The government is targeting gilt switches worth a record INR 2.50 trillion in FY27. The Centre's annual repayments between FY27 and FY32 were all in excess of INR 5 trillion as on Feb. 1 when the Budget was presented.

 

"Though more duration supply is not a good thing, the market will trend in the right direction if the gross borrowing numbers that people are expecting come down gradually," another person aware of the discussions said. "In that sense, I think some banks will tender their short-term bonds."  End

 

With inputs from Cassandra Carvalho and Janwee Prajapati

Edited by Rajeev Pai

 

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