The aggregate amount raised by the central government at ₹5.8 lakh crore so far in the current fiscal is 71 per cent higher than corresponding period last year, according to CARE Ratings.

This is around 48 per cent of the revised central government market borrowing limit of ₹12 lakh crore for the year and 83 per cent of the amount to be raised in the H1 (April-September) of FY21 (around ₹7 lakh crore), said Sushant Hede, Associate Economist, in the credit rating agency’s weekly update on central government borrowings.

The higher expenditure incurred and lower revenues have led the government to resort to additional market borrowing to meet the fiscal deficit.

Auction

As per the update, the Central Government raised ₹29,363 crore on August 14, 2020, which is marginally lower than the notified amount for the week (₹30,000 crore).

Despite two instruments for which green shoe option was exercised aggregating ₹4,000 crore, the fall in the quantum of acceptance compared with the notified amount is on account of lower appetite for the 10-year benchmark G-Sec instrument which recorded lower acceptance by ₹4,638 crore, it added.

“After 15 consecutive auctions wherein acceptance amount was more than the notified amount, this week’s auction saw total acceptance lower than the notified amount,” Hede said.

Partial devolvement

The auction on Friday of the benchmark 10 year Government Security (G-Sec) carrying coupon rate of 5.77 per cent to raise ₹18,000 crore saw partial devolvement on primary dealers (PDs).

Devolvement occurs when the cut-off price set by RBI is not as per market expectations or the RBI rejects the bids which are not in sync with its cut-offs.

As against the notified amount of ₹18,000 crore for the 10 year G-Sec, the central bank received 343 bids aggregating ₹37,780 crore.

However, the RBI accepted 167 competitive bids aggregating ₹13,346 crore at a weighted average price/ yield of ₹98.63/ 5.9539 per cent.

The devolvement on PDs was at ₹4,638 crore. PDs are entities which offer two way quotes with bidding commitments in the auction of dated securities and Treasury Bills.

Bond market expert K Boovendran said: “The underwriting commission paid to PDs was 74 paise. It amounts to about 10 basis points.

“Had the cut-off yield been increased by 10 basis points to 6.0634 per cent, probably there would not have been any devolvement. The yield on the security will be also nearer to reasonable level.”