In the run-up to the Union Budget for FY23, the Government of India did a conversion transaction for Government Securities (G-Secs) and Oil bonds with the Reserve Bank of India (RBI) on January 28, 2022 for ₹1,19,701 crore (Face Value), the central bank said. 

The transaction involved buying back securities maturing in FY 2022-23, FY 2023-24 and FY 2024-25 from the RBI and issuing fresh securities for equivalent market value, to make the transaction cash neutral. This is probably one of the biggest conversion transactions in recent times.

Conversion of G-Secs maturing in the next three financial years into new G-Secs maturing at a later date will help reduce the redemption pressure on the Government.

Out of the six G-Secs (aggregating ₹63,648 crore) maturing in 2022, three each were converted into G-Secs maturing in 2028 and 2029, respectively. The GoI Floating Rate Bond maturing in 2024 (aggregating ₹27,330 crore) has been converted into a G-Sec maturing in 2035.

With the aforementioned conversion, the Government has managed to postpone redemption of G-Secs (aggregating ₹63,648 crore), which mature in FY23. So, the outgo will be less to that extent in FY23.

Six oil bonds (aggregating ₹28,723 crore) maturing between 2023 and 2025, were converted into G-Secs maturing in 2030.

Oil bonds had been issued by the previous UPA regime as compensation to oil marketing companies in lieu of cash subsidies.

The aforementioned conversion transactions were carried out using Financial Benchmarks India Pvt Ltd. (FBIL) prices as on January 28, 2022. 

RBI, in a statement, said the Government of India has been undertaking conversion or switch operations with market participants as well as with the Reserve Bank with the objective of smoothening the liability profile as well as for market development. 

RBI started doing conversion transactions of Government of India securities from April 22, 2019. Such conversion transactions with market participants are done on third Monday of every month.

Bidding in the auction for conversion implies that the market participants agree to sell the source security/ies to the Government and simultaneously agree to buy the destination security from the GoI at their respective quoted prices. 

Meanwhile, RBI will be conducting a 3-day variable rate reverse repo auction (VRRR) on Tuesday to suck out up to Rs 4 lakh crore liquidity from the banking system.

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