RBI receives six fold bids worth Rs 1.2 trn at OMO purchase auction
Delhi, Jan 30, 2025
The cut-off price on the bonds scheduled was set below the secondary market price due to high demand, said market participants
The Reserve Bank of India (RBI) received bids worth Rs 1.2 trillion against the notified amount of Rs 20,000 crore at the open market operation (OMO) purchase auction on Thursday—the first of the three auctions announced by the RBI earlier this week.
The cut-off price on the bonds scheduled was set below the secondary market price due to high demand, said market participants. The central bank did not accept any bid on the 7.59 per cent GS 2029 bond.
After reviewing current liquidity and financial conditions, the RBI announced a series of measures on Monday to inject durable liquidity into the banking system. These include open market purchase auctions of government securities totalling Rs 60,000 crore in three tranches of Rs 20,000 crore each on January 30, February 13, and February 20.
The net liquidity in the banking system was in a deficit of Rs 2.55 trillion on Wednesday, the latest data from the RBI showed. At the first auction, the RBI had offered to purchase the following bonds:
7.59% GS 2029 bond maturing on March 20
7.18% GS 2033 bond maturing on August 14
7.10% GS 2034 bond maturing on April 8
6.79% GS 2034 bond maturing on October 7
7.18% GS 2037 bond maturing on July 24
“The banks are allowed to use 5 per cent of the bonds under the HTM for OMO; hence, it also led to massive demand,” said V R C Reddy, head of treasury at Karur Vysya Bank. “Any bank that wants to crystallise its income in the HTM portfolio, this is the best route,” he added.
Under the updated investment portfolio norms, banks must categorise bonds as "held-to-maturity" (HTM) on a permanent basis, except for 5 per cent of the portfolio, which can be withdrawn throughout the year. Any deviation from this rule requires approval from both the bank's board and the RBI.
Earlier, banks were allowed to reclassify their investments between categories once a year on the first day of the financial year, through which they used to book capital gains.
“The demand was high because the papers that were auctioned were very liquid,” said the treasury head at a state-owned bank. “The RBI had clarified in their notification that the acceptance of bids depends on their conditions. Maybe they were looking for some other level for the 2029 bond,” he added.
The yield on the 10-year benchmark government bond closed at 6.69 per cent on Thursday, unchanged from the previous close.
[The Business Standard]
