Skip to main content

RBI cancels bids for Rs 11,000 cr bonds

RBI cancels bids for Rs 11,000 cr bonds
The Reserve Bank of India (RBI) on Friday refused to accept bids for Rs 11,000 crore worth of bonds in the final auction of this calendar year.In all, four bonds for Rs 15,000 crore were on offer.Bids for two bonds —one maturing in 2022 (Rs 3,000 crore on offer) and another in 2031 (Rs 8,000 crore)—were rejected by the central bank.
It sold the remaining two bonds worth Rs 2,000 crore each and maturing in 2033 and 2046.The signal from the RBI has been that high yields would not be acceptable to the central bank or the government.Also, and that the yield movement have been over the top inashort span.
The decision not to accept bids for two bonds addressed some of the market concerns related to liquidity after the government announcement on Thursday that it was going for additional borrowing of Rs 50,000 crore."The partial cancellation of the auction means that the government has a comfortable cash position and is unwilling to pay high coupons," said Piyush Wadhwa, head of trading at IDFC Ban
Following the auction results, bond yields fell 15 basis points to 7.25 per cent in the intraday, before climbing back to close at 7.33 per cent, from its previous close at 7.40 per cent.This is a marginal relief for banks as they will now have to provide lower nominal losses on their bond portfolio.

Nevertheless, considering the 10year bond yield was at 6.648 per cent at the start of the quarter, the yield movement is still at 68 basis points in the quarter.The bank treasury, therefore, will have to takeahit on their books.

According to bond dealers, nationalised banks were buyers in the market, whereas foreign banks were on a selling spree following government´s extra borrowing announcement.Nationalised banks were particularly buying some illiquid stocks so that yields fall and markto market losses are minimised, said bond dealers.
However, such yield management is not possible in the benchmark segments as liquidity in those stocks is significant.Banks are also limited by the liquidity in hand.Data shows liquidity has shrunken considerably in recent period.For example, banks borrowed to the tune of Rs 36,604 crore as of Thursday, according to RBI data.Friday´s figure will come on Monday, but it is likely that banks may have turned net borrower.
This is contrary to what banks have been doing in the recent months as they were sitting on high liquidity following demonetisation.The government, meanwhile, had a cash balance of about Rs 4,500 crore as on December 23, RBI data showed
Unless the government starts spending this money, yields would continue to be under pressure, dealers said. “Liquidity is tight in the system and therefore banks have demanded higher yields.But no government would want to borrow at this price,” said Srinivasa Raghavan, CFO of KBS Local Area Bank.
RBI´s yield signal is important, but may not be enough in the long term as banks are satiated with their bond holdings.But supply of papers would continue this year and may even rise next financial year. Dealers say the auction has not been cancelled, but ´postponed´ and the government is likely to return with another auction date for the Rs 11,000 crore portion
"Investors don´t have strong expectations of yields going up or down, but the risk appetite is severely hit as banks are sitting on about nine per cent of excess SLR and they have suffered huge MTM losses in those," said Wadhwa
Four bonds forRs 15,000 crore were on offer
Bids for two bonds —one maturing in 2022 (Rs 3,000 crore on offer) and another in 2031 (Rs 8,000 crore)—were rejected by the central bank
It sold the remaining two bonds worth Rs 2,000 crore each and maturing in 2033 and 2046
Following the auction results, bond yields fell 15 bps to 7.25 per cent in the intraday
The Business Standard, New Delhi, 30th December 2017


Popular posts from this blog

RBI minutes show MPC members flagged upside risks to inflation

RBI minutes show MPC members flagged upside risks to inflation Concerns about economic growth and easing inflation prompted five of the six monetary policy committee (MPC) members to call for a cut in the repo rate, but most warned that prices could start accelerating, show the minutes of the panel’s last meeting, released on Wednesday. The comments reflected a tone of caution and flagged upside risks to inflation from farm loan waivers, rise in food prices, especially vegetables, price revisions withheld ahead of the goods and services tax, implementation of house rent allowance under the 7th pay commission and fading of favourable base effect, among others. On 2 August, the panel chose to cut the repurchase rate—the rate at which the central bank infuses liquidity in the banking system—by 25 basis points to 6%. One basis point is one-hundredth of a percentage point. Pami Dua, professor at the Delhi School of Economics, wrote that her analysis showed “a fading economic growth outlook, as …

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

Differential Tax Levy under GST: Food Firms May De-Register Trademarks

Differential Tax Levy under GST:Food Firms May De-Register Trademarks The government’s decision to charge an enhanced tax rate on trademark food brands is leading several rice, wheat and cereal manufacturers to consider de-registering their product trademarks. Irked by the June 28 central government notification fixing a 5 per cent goods and services tax (GST) rate on food items packaged in unit containers and bearing registered brand names, the industry has made several representations to the government to reconsider the differential tax levy, which these players say is creating an unlevel playing field within these highly-competitive and low-margin industries. Sources say that the move has affected the packaged rice industry the hardest and allowed the un-registered market leaders, India Gate and Daawat, to gain advantage as compared to other registered brands such as Kohinoor and Lal Qilla. Smaller players are even more worried with this enhanced rate of tax (against the otherwise …