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The Reserve Bank of India on Friday said it will conduct the first ever purchase auction of State Development Loans (SDLs) under Open Market Operations (OMOs) for an aggregate amount of ₹10,000 crore on October 22.
The central bank said the purchase auction amount has been kept at ₹10,000 crore, keeping in view that this is the first ever OMO purchase of SDLs. Depending on market response, the size of the auctions may be enhanced in the subsequent auctions, it added.
The RBI will purchase two SDLs each of 15 States and Union Territories through a multi-security auction using the multiple price method. There is no security-wise notified amount. The SDLs mature in 2029, 2030 and 2031.
In its “Statement on Developmental and Regulatory Policies”, issued on October 9, RBI said it will conduct open market operations (OMOs) in SDLs as a special case during the current financial year to improve liquidity and facilitate efficient pricing.
The OMOs would be conducted for a basket of SDLs comprising securities issued by States.
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The auction this time was a success unlike the last one; RBI measures have eased the concerns of the bond marketCARE note
According to a note by CARE Ratings, 28 States and 2 UTs have cumulatively raised ₹3.95- lakh crore via market borrowings so far in the current fiscal year, 52 per cent more than the borrowings in the corresponding period of 2019-20 (₹2.59-lakh crore).
As per the borrowing calendar for the first three quarters of 2020-21 (April-December), the States are to borrow ₹5.07-lakh crore. States have already borrowed 78 per cent of this amount, the rating agency said.
Cost of borrowings dip
In the note, dated October 13, Kavita Chacko, Senior Economist, CARE Ratings, said: “Consequent to the policy measures announced by the RBI at its monetary policy meet on Friday which included special OMO’s (open market operations) in SDLs to support borrowings of State governments, there has been a moderation in the cost of borrowings for State governments this week.
“The weighted average cost of borrowing for the state government dated securities (across States and tenures) auctioned today at 6.50 per cent was 30 basis points lower than a week ago. It, however, was 17 basis points higher than a month ago (September 15, 2020).”
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