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Harish Damodaran

New Delhi , Dec 3

THE Finance Ministry has converted the entire stock of non-transferable `special securities' issued to the Reserve Bank of India in lieu of outstanding ad hoc Treasury Bills into regular marketable, dated Government of India (GoI) securities.

"We have only recently converted the balance Rs 41,818 crore worth of special securities into dated stock, which will considerably bolster the RBI's sterilisation armoury," a top Finance Ministry official said.

The RBI's original holdings of special securities aggregating Rs 71,000 crore were issued in the course of `funding' operations during the 1980s and early 1990s. These involved conversion of 91-day ad hoc and tap Treasury Bills into non-transferable securities, bearing a fixed 4.6 per cent annual interest in perpetuity. In addition, another Rs 50,818 crore of all outstanding ad-hocs were similarly funded during 1996-97, simultaneous to the Government's decision to discontinue fresh issue of such bills to RBI in order to curb automatic monetisation of its fiscal deficit.

But in 1997-98 itself, Rs 20,000 crore of the Rs 1,21,818 crore stock of special securities were converted into dated paper containing all the marketable features of regular gilts. During 2002-03, another Rs 40,000 crore was similarly converted. On June 12, this year, an additional Rs 20,000 crore worth of special securities were replaced with marketable securities of various maturities and prevailing yields on GoI paper. The remaining Rs 41,818 crore was converted over the last few weeks, the official confirmed.

As on November 21, the RBI's holdings of Government securities amounted to Rs 54,594 crore. If one adds to this, the outstanding securities of Rs 25,780 crore sold through repo auctions under the liquidity adjustment facility - these are to be repurchased in 1-14 days - the total stock of marketable securities in the central bank's portfolio for conducting open market operations (OMO) comes to Rs 80,374 crore.

This is, however, way below its corresponding holdings of Rs 1,26,777 crore as on November 22, 2002. But the difference is that while the existing stock of Rs 80,374 crore consists entirely of marketable securities, two-thirds of the Rs 1,26,777 crore worth of paper held at this time last year comprised non-marketable special securities.

"The RBI, as of now, has sufficient stock of Government paper to carry out OMO, particularly after the conversion of the balance holdings of special securities," the official added. At the same time, the conversion comes at a cost. While the special securities carried a fixed interest of 4.6 per cent, the fresh dated paper issued in their place bear average coupons of 6-6.5 per cent. The additional interest outgo on account of conversion of the entire Rs 1,21,818 crore special securities would work out to roughly Rs 2,500 crore.

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