Ever wondered how the government borrowing programme sails through so easily? Well, the RBI lends a helping hand.

The RBI's holdings in gilts, or government bonds, have risen by almost two percentage points to 14.4 per cent in the six months ended March 31, 2012. The holdings have trebled from lows of 4.8 per cent as of March 2008.

Buyback operations done by the central bank in 2009 and 2011-12 to infuse liquidity into the market has increased the holding in gilts.

The RBI over the six months period ended March 2012, infused Rs 1.3-lakh crore by buying back government bonds. The amount infused through open market operations (OMOs), as this is called, amounted to 7.5 per cent of the banks' investments in government securities as of September 2011. The operations freed up funds to this extent. The RBI has infused another Rs 43,000 crore of liquidity in the current fiscal through bond buybacks.

Reduced participation

Indian banks and their primary dealers' have reduced their participation in government borrowings in 2011-12. Commercial banks, which are mandated to invest about a quarter of their deposits in government securities, have seen their ownership in government bonds fall to a multi-year low.

Commercial banks owned a little over 46 per cent of outstanding gilts in March 2012, down from 47.9 per cent in September 2011 and 47 per cent in March 2011.

Reflecting this, the investment-to-deposit ratio of the banks declined from 30.8 per cent in September 2011 to 29.4 per cent in March 2012.

Insurance companies, the second largest holders of gilts, have also witnessed their share of government investments decline to 21 per cent by March 2012.

>mvssantosh@thehindu.co.in

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