The Reserve Bank of India (RBI) on Thursday conducted first-ever open market operations (OMO) in State Development Loans (SDLs) and purchased Rs 10,000 crore of bonds under the scheme. The SDLs are the securities issued by states to manage their own finances.
The central bank received an overwhelming response from SDL holders as they offered Rs 15,475 crore of bonds against the issue size of Rs 10,000 crore. The lowest cut-off yield was offered for Karnataka's 9 year bond at 6.4746 per cent, while the highest cut-off was Jammu and Kashmir's 10 year SDL at 6.6813 per cent, the RBI data showed.
The central bank purchased two papers each of 15 states in the open market operations.
The eligible participants submitted their bids in electronic format on the Reserve Bank of India's Core Banking Solution (E-Kuber) system between 10:00 am and 11:00 am today.
On October 16, the RBI had announced its first-ever OMO of the state government securities worth Rs 10,000 crore, which was proposed to be enhanced based on market response. The decision to conduct OMO of state government securities followed its policy announcement earlier this month, in which it had vowed to provide additional liquidity to states in the wake of COVID-19 pandemic. Due to the economic losses amid the coronavirus crisis, states are expected to borrow around Rs 2 lakh crore in the third quarter of the fiscal year. In FY20, the states borrowed Rs 1.5 lakh crore only.
According to rating agency ICRA, from April-October first week, states borrowed Rs 3.76 lakh crore via state development loans. This is around 53.6 per cent higher than the last fiscal.
In a separate development, the RBI has also announced OMO purchase of central government bonds worth Rs 20,000 crore on October 29, 2020. The apex bank purchase will be done in bonds maturing between 2025 and 2032 through a multi-security auction using the multiple price method.
This happens to be the second OMO purchase of central bonds by the RBI. In the last auction, the RBI had purchased Rs 20,000 crore of bonds. In the monetary policy meeting on October 9, the RBI had doubled the size of OMO auctions from Rs 10,000 crore to Rs 20,000 crore. This was done to maintain comfortable liquidity conditions in the system.
By Chitranjan Kumar