2nd half govt borrowings unlikely to see floaters

Floating rate bonds may not form part of the government borrowing programme for the second half of the current fiscal.

According to banking industry sources, the government is not inclined to issue floaters due to lack of market appetite in a tight interest rate scenario.

They added that lack of yield differential is shooing away investors from floating rate bonds "" both government as well as corporate issues.

According to dealers, most of the papers with floating rate of interest earns negative spread.

The market response to the last floating rate bond announced by the Reserve Bank of India to raise Rs 4,000 crore as part of the government borrowing programme was pretty cautious.

A dealer said, even though the market wanted a floating rate instrument to hedge against inflation, in the secondary market, there is hardly any appetite for the floaters due to lack of interest rate advantage.

The government has earmarked Rs 44,000 crore to be borrowed as part of public debt for the second half of the current fiscal.

According to banking sources, this is much less than both the market expectation and the projected borrowing programme of the government. Following this, the bond market has improved and ten year paper yield has come down from highs of 6.15/6.16 per cent to 6.12 per cent.

The market was expecting a market borrowing of around Rs 70,000-80,000 crore in the second half of the fiscal, added sources.

On the other hand, given the projection of the government borrowing for the entire fiscal at Rs 1,50,817 crore, around Rs 98,000 crore remains to be borrowed in the second half.

In the current fiscal the government has borrowed a total Rs 81,500 crore as on date, out of which Rs 28,00 crore forms part of the market stabilisation scheme.

In effect, around Rs 53,000 crore has been borrowed as part of the government borrowing excluding market stabilisation instruments. But sources said the borrowing programme will continue along with the market stabilisation bonds.

The government plans to bridge the gap between the actual borrowing and the estimated provisions with around Rs 10,000-12,000 crore through the debt swap scheme, said sources. There are also plans of conversion of special securities to dated securities but when and how much will have to be decided later, said sources.

On the other hand, last year, till September 5,2003, the government had already completed 75 per cent of the total borrowing.