In a move that is probably aimed at lessening the government’s borrowing burden in the new financial year, the Reserve Bank of India, in consultation with the government, has converted four securities maturing in 2017-18, having a total face value of about ₹37,078 crore, to longer tenor securities.
Through the conversion, the government securities in the RBI’s portfolio that were to mature in 2017-18 will now mature in 2024-25 and 2029-30.
The transaction, according to an RBI statement, was conducted on January 25, 2017, at the Fixed Income Money Market and Derivatives Association of India (FIMMDA) prices.
If these securities were to be redeemed, the government would have had to stump up cash to pay the RBI via fresh borrowing. So, the government’s gross market borrowing could have gone up as a result.
According to NS Venkatesh, Executive Director, Lakshmi Vilas Bank, “Since the securities have been converted, the government need not resort to fresh borrowing (to redeem them). So, the gross government borrowing will not go up to the extent of the converted amount.
“The second way of looking at it is that by lengthening the maturities, the RBI will have sufficient long-dated securities to conduct open market operations (OMOs).”
OMOs are conducted by the RBI by way of sale/ purchase of government securities to/ from the market with the objective of adjusting rupee liquidity conditions in the market on a durable basis.
Earlier conversionsIn the last financial year (on March 3, 2016), too, the RBI, in consultation with the government, had converted two securities from its portfolio maturing in 2016-17 and 2021-22 — having total face value of about ₹37,300 crore — to longer tenor securities maturing in 2023-24 and 2024-25.
Also, on March 20, 2015, the RBI had converted two securities maturing in 2015-16, with a total face value of about ₹30,228 crore, to a longer tenor security maturing in 2026-27.