Borrowing cut unlikely: Poll

The government is unlikely to cut the size of the borrowing plan for the second half of the current financial year 2007-08, despite raising additional funds through an auction of 5000 crore of bonds in June to fund the State Bank of India stake buy.

According to a NewsWire18 poll of 10 money market players, the government will not revise the budgeted target of borrowing through government bonds.

The government is budgeted to borrow Rs 1.55 trillion in the current financial year, out of which, they have already raised Rs 90,000 crore till now. The borrowing would rise to Rs 97,000 crore after this month's gilt auction. "The pace of expenditure is much higher than estimated. Whatever they have borrowed in excess will remain in excess. They will not offset whatever they have borrowed," said Vikas Goel, executive director, treasury, Calyon Bank.

The central government is likely to detail the calendar of auctions for Oct-Mar by the end of this month, the dealers said.

No more tenders

Dealers do not expect any additional borrowing this month after the auction of Rs 7,000 crore scheduled between Friday and September 14.

"They're running a surplus, there is no need for another auction this month. There will be advance taxes also," said A. Prasanna, fixed income analyst, ICICI Securities.

The government was in cash surplus after the Reserve Bank of India transferred Rs 45,720 crore profit to the government in August. The government's cash balance with the RBI as of August 24 was Rs 3,489 crore and its outstanding under ways and means advances was nil.

Some Rs 30,000-35,000 crore are estimated to move out of banks in the form of second instalment of corporate advance tax outflows from September 15.

Floaters unlikely

Most of the dealers expect the government not to issue floating rate bonds, because of their illiquidity.

"FRBs are illiquid and pricing is a problem," said S. Ananthanarayan, senior vice-president, Kotak Mahindra Bank.

However, the Annual Policy Statement of the RBI states that the base rate for the new FRBs would be the average implicit cut-off yield in the last three auctions of 182-day Treasury bills.

Currently, the base rate is arrived at after considering the average implicit cut-off yield of 364-day T-bills.

At the most, there might be one or two issues of floaters, said a fixed income head with a UK bank.

"There is hardly any market for FRBs. I don't think anyone's there in the market to receive those bonds," said a chief dealer with a primary dealership.