RBI’s G-Secs holding may rise by Rs 2 Lakh Crore in next financial year, report says

Given the government’s record borrowing plan of Rs 14.3 lakh crore for FY23, the Reserve Bank of India (RBI), which already holds up to 17% of outstanding government bonds of Rs 80 .8 lakh crore will have to find buyers for at least Rs 2 lakh crore as banks typically opt for short-term debt of less than 10 years, according to a report.

The 2023 budget pegged the Centre’s gross borrowing at a record Rs 14.3 lakh crore. With the states, the gross borrowing will be Rs 23.3 lakh crore and the net will be Rs 17.8 lakh crore for the next financial year. The budget seeks to repay Rs 3.1 lakh crore next financial year, up from Rs 2.7 lakh crore this financial year.

With outstanding government bonds of Rs 80.8 lakh crore, the RBI is the second largest holder after financial institutions.

According to a report by SBI Research, government securities maturing in 2061 are worth Rs 80.8 lakh crore at the end of January. Of this total, 37.8% is held by banks, 24.2% by insurers, which means that 62% of them are held by them, and the monetary authority holds up to 17%.

In contrast, foreign ownership of G-secs is only 1.9%. It is the lowest among its peers as in Brazil it is high at 44.5%, 41.1% in Mexico, 35% in South Africa and 10.5% in China, according to the report. He also pointed out that if the government had allowed the inclusion of G-Secs in international bond indices, as widely expected, it would have seen at least Rs 1.5 lakh crore / USD 15-20 billion in ownership. supplemented by foreigners, helping the RBI to manage the loan program easily.

The outstanding amount of dated government securities stood at Rs 80.76 lakh crore at the end of January 2022, which are to be repaid till 2061.

However, the banks’ overall share has fallen by 10 percentage points since March 2010, when they held 47.25%, with banks leaning more towards shorter duration offerings, preferably for 10 years or less, leaving longer durations to insurance companies and others with a similar appetite. , says the report by SBI chief economic adviser Soumya Kanti Ghosh.

Ghosh also said that the large size of FY23 market borrowings at Rs 14.3 lakh crore and the lack of progress on the inclusion of G-secs in global bond indices still raises questions. whether the RBI might have to delay the normalization of liquidity in an effort. to support the major borrowing program.

The larger issue is the blurring of the RBI’s debt management and cash management operations, which again raises the question of whether the debt management functions should be separated from the monetary management of the monetary authority.

Based on the ownership pattern of G-secs in September 2021 and considering total net borrowing at Rs 11.2 lakh crore, the report says demand for securities from banks will be around Rs 4.2 lakh crore , given NDTL (net demand and time liabilities) increase by 10% and SLR (statutory liquidity ratio) at 27%, he said.

The report said insurers could underwrite Rs 2.7 lakh crore. This implies that the RBI should always ensure demand for at least Rs 2 lakh crore through OMOs (open market operations) and the rest will be bought by PDs, MFs, REITs and others. But this complicates the issue of normalizing liquidity.

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