Banks request RBI to include more long-term bonds in H1 FY24 borrowing

Banks expressed reservations about floating rate bonds in next year's borrowing

In recent meetings with senior officials of the Reserve Bank of India (RBI), banks are said to have suggested that more longer-tenure government bonds be issued, and a 20-year bond be introduced, in the Centre’s market borrowing calendar for April-September 2023.

The request for more longer-maturity government bonds comes after long-term investors, such as insurance companies, provident and pension funds, showed firm demand for such securities in the current financial year, sources told Business Standard.

Most banks also suggested that the RBI should not sell floating rate bonds (FRBs) or else it should reduce the quantum of these securities in the borrowing calendar for the first half of the next fiscal year.

The meetings come ahead of the release of the borrowing calendar for April-September, likely by the end of next month. The RBI is the government’s debt manager.

In the Union Budget for 2023-24 (April-March), the government announced a gross borrowing programme of Rs 15.43 trillion for the next fiscal year, a fresh high. In accordance with the revised estimate in the Budget, the government borrowed Rs 14.21 through the sale of bonds on a gross basis in the current financial year.

The government typically conducts a larger portion of borrowing in the first six months of the financial year.

“Given the sort of demand by insurance companies, a clear-cut request was for more long-term bonds and, in particular, to come out with a 20-year bond. We have seen a structural shift in the demand from insurance companies,” a source aware of the developments said.

“The only concern expressed about issuing a 20-year benchmark was whether there would be enough demand to absorb around Rs 1.5 trillion of the paper as should happen with a benchmark,” the source said.

An email sent to the RBI did not elicit a response till the time of going to press.