Debt buyback from July 19

The Reserve Bank of India will commence the government's buyback of high coupon bonds on July 19 for a total amount of Rs 1,00,438 crore.

On July 22, four government securities worth Rs 35,500 crore will be swapped by the government with the banks in lieu of 19 high-coupon securities. The coupons of these 19 securities, maturing between 2006 and 2008, vary between 8 per cent and 13 per cent.

The RBI will auction four securities "" the 6.65 per cent 2009 (Rs 3,000 crore), 6.72 per cent 2014 (Rs 5,500 crore), 7.46 per cent 2017 (Rs 13,000 crore) and 6.25 per cent 2018 (Rs 14,000 crore) "" in the first tranche.

The nitty-gritty of the buyback plan was finalised at a meeting with bankers at the central bank today. A new software prepared by the Clearing Corporation of India Ltd will be installed in the respective negotiated dealing systems of the banks to enable online bidding.

The RBI may indicate a band of prices to avoid aggressive bidding on the lower side. The band could be between one week's average price of the security and a floor price set for each security days ahead of the auction.

The auction will be held for three hours between 11 am and 2 pm. Banks will be allowed to revise their bid size within the auction period.

The government is expected to come out with a few more buyback auctions over the next few months, depending on the response of the banking industry to the inaugural one.

Under the buyback plan, the government will swap high-cost securities with the banks to the tune of the face value of the government securities surrendered under the scheme and not based on the total market value.

If set aside for provisioning for non-performing assets, the capital gain arising out of the sale of securities will get a tax benefit.

The buyback of government securities forms a part of the government's move to consolidate debt, aimed at reducing the weighted average cost of government borrowing.