The Hindu Business Line : G-secs buyback may be one-off affair

FEEDBACK reaching the Ministry of Finance from public sector banks could force a drastic alteration in the calendar for the proposed buyback of Government securities.

The Ministry is gradually veering to the view that the entire buyback programme could well turn out to be a one-off affair instead of the earlier plans to stagger the estimated aggregate deals of Rs 82,200 crore into a few tranches.

Within a month of alerting the PSU banks on the details of the proposed buyback, the Ministry feels that the banking sector might not be willing to come back with a second round for executing similar deals. "Whatever is there would be there in the first auction itself.

There might not be any need for follow-up tranches," a senior Finance Ministry official said.

While finalising the preliminary sketch of the buyback scheme along with the Reserve Bank of India (RBI) in the presence of bank chiefs in a meeting in Mumbai in early May, the Finance Secretary, Dr S. Narayan, had said that the first tranche of the programme would be kicked off sometime in June or July, thereby, indicating that there would be more such deals staggered over a period.

In fact, the Government's assessment that the programme could end up being packaged into a single deal would come as a surprise to the banking industry since banking insiders at the meeting had told Business Line that they believed that the subsequent tranches of the buyback programme could even spill over into the next fiscal.

The Ministry's view would indicate that the amount that would eventually be set aside by the Government for meeting the payout of premium arrived at through the auction of the various securities would be adequate to meet the requirements of the entire buyback plan.

The Government has indicated that it would allocate a maximum of around Rs 6,000 crore for making the payment of the premium on the securities.

This, in turn, would mean the banking section is wary of jumping onto the buyback bandwagon. They would be extremely cautious on the impact that it could have on the profits of the ensuing years in case the entire portfolio of the identified high-yielding Government paper is done away with in haste.

The Government had initially indicated a total of 24 such high-coupon bearing securities that it felt was also illiquid and had asked the banks to undertake a detailed individual exercise of identifying more such securities that could be brought to the auction counter.

"Several banks have already indicated to us a few more such illiquid securities in their portfolio that they are willing to offload," officials said.

While the proposed win-win buyback deal is expected to substantially ease the debt servicing burden by replacing the high-coupon securities with freshly issues ones at much lower market rates, the banks stand to gain in the bargain by being allowed attractive tax benefits but only if they utilise the profits from the auction to make provisions for their non-performing assets (NPAs).

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