The RBI bond sale on September 28 will offer Rs 25,000 crore of government securities, completing the central bank’s Rs 1 lakh crore liquidity-management programme.
MUMBAI: The Reserve Bank of India will sell another Rs 25,000 crore worth of government securities on September 28 as it continues efforts to withdraw surplus money from the banking system. The RBI bond sale will be the final tranche of a Rs 1 lakh crore open market operation programme announced earlier this month.
The central bank scheduled the programme across three auctions, comprising Rs 50,000 crore on September 17 followed by Rs 25,000 crore each on September 21 and September 28. The first two transactions have already removed Rs 75,000 crore through government bond sales.
Why is the RBI selling government bonds?
The measure is designed to manage the large amount of surplus cash in India’s banking system.
An open market operation, or OMO, allows the RBI to sell government securities to banks and other eligible market participants. Buyers pay the central bank for those securities, effectively taking rupees out of circulation within the banking system.
Banking system liquidity remained in surplus by about Rs 4.92 lakh crore as of September 21, according to RBI data cited in recent reports.
Large foreign currency inflows, particularly through Foreign Currency Non-Resident Bank deposits, have been a major contributor to the surplus. Government expenditure has also added liquidity to the financial system.
What will RBI sell on September 28?
The RBI bond sale will cover six Government of India securities with maturities ranging from 2029 to 2032.
The bonds offered include the 7.59 per cent GS 2029, 6.45 per cent GS 2029, 7.61 per cent GS 2030, 5.85 per cent GS 2030, 6.54 per cent GS 2032 and 7.26 per cent GS 2032.
Eligible participants can submit electronic bids through the RBI’s E-Kuber system between 9.30am and 10.30am on September 28. Auction results are scheduled to be announced the same day, with successful bidders required to have funds available by noon on September 29.
RBI steps up liquidity management
The central bank has been using several tools to manage excess liquidity. On September 23, it absorbed Rs 75,026 crore through an overnight variable rate reverse repo auction, another mechanism used to temporarily remove surplus funds from banks.
The September 28 RBI bond sale will complete the currently announced Rs 1 lakh crore OMO programme.
Impact to expect
Tightening. Removing surplus cash can help bring short-term money-market conditions closer to the RBI’s intended monetary policy settings. Bond sales can also influence government security yields and banks’ available liquidity, making the September 28 auction relevant for financial markets and borrowers.
