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Rukmani Vishwanath

MUMBAI, May 10

THE Reserve Bank of India is understood to have asked a number of primary dealers (PDs) to mark up their bidding commitments for the current fiscal, towards auctions held in the Government securities market.

PDs are expected to submit their business plan to RBI at the beginning of the new fiscal, detailing their bidding commitments.

Sources said, this year, some PDs had bid rather conservatively, and even all the commitments put together did not cover the Government's borrowing programme. Therefore, they were asked to hike their bids by a few crore. The budgeted borrowings for this year is around Rs 1,66,000 crore as compared to last year's Rs 1,48,000 crore.

While some PDs dismiss this as a yearly occurrence, others say that the apex bank is probably concerned about whether the borrowing programme will go through smoothly.

According to an official with a PD, "Interest rates are low and the market is flooded with liquidity. If inflation goes up, it will be an uncomfortable situation. If RBI tightens liquidity, and interest rates go up, then the Government's borrowings will get affected''.

"There is a fear that the issues might not go through as expected. It is a difficult situation, especially when there is also some concern that the recently announced debt-swap scheme of the Government might increase fiscal deficit. The unabated appreciation of the rupee and the recent crash in the forward premia, have raised questions about the exchange control policy'', he said.

Recently, PDs are understood to have asked RBI for exclusive participation in some auctions.

A section of market participants say that perhaps the increased bidding commitments demanded by the RBI is for this purpose, and that the apex bank might permit PDs exclusive auctions in the future.

However, one senior banker allaying the fears said, "It is the responsibility of PDs to underwrite. That is why PDs were created in the first place. Undoubtedly, RBI would like to have comfortable commitments to ensure smooth borrowings. But it might not mean much more than that''.

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RBI asks PDs to mark up bidding commitments

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