The massive sales of government securities by Reserve Bank of India worth Rs 6201 crore through its open market operation between July 24 1998 and August28 has drastically brought down the monetised deficit of the centre.
Effectively government of India's securities that had devolved on the RBI during the course of the current financial year have been substantially offloaded into the market. The increase in the RBI holding of government securities during the current financial year has come down from a high of Rs 11,690 crore on July 24 to Rs 5,469 crore as on August 28.
According to the market sources, State Bank of India had been leading bank subscribing to the government stock listed on OMO window of the RBI. In last few Of the US $ 4.216 billion that SBI collected from the Resurgent India Bonds, SBI has brought US $ 3 billion into the country which is swapped with the RBI.
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Of this SBI has brought securities worth Rs 5,000 crore from the RBI's sale window while Rs 7500 crore has been parked in repos and remaining is used to meet CRR requirements. The result is that the cash floating in the system due to the monetisation has been sucked out through the OMO.
"This reduction is reflected in the sharp decline in the net RBI credit to the centre which is the key indicator of monetised deficit," said RBI. "Net RBI credit to the centre has reduced from its peak level of Rs 21,789 crore as on July 10 to Rs 8,183 crore on August 28, showing a reduction of Rs 15,626 crore." In the current fiscal, the RBI has lend support to government borrowing programme to the tune of Rs 15771.81 crore which include private placement worth Rs 10,000 crore and devolvement of auction of dated government securities of Rs 5771.81 crore
The sale of government securities held by RBI in the open market is in line with the RBI's policy statement on June 11, 1998. The RBI had made it clear that it will phase out government borrowing programme in manner so that it has least adverse affects on the long term interest rates. In order to do so, RBI will be prepared to accept private placement of securities and then release them to the market gradually.