Government borrowing through short-term debt rose in the first quarter of the current financial year, compared to the same quarter last year. According to the Reserve Bank of India (RBI), the total issue of treasury bills stood at Rs 121,541 crore as on July 1, up from Rs 72,329 crore a year ago.
The government had auctioned Rs 117,000 crore of treasury bills and Rs 38,000 crore of cash management bills in the first quarter of the current financial year. The amount borrowed through treasury bills was Rs 87,000 crore and that through cash management bills was Rs 12,000 crore.
Treasury bills are government debt instruments with maturity periods between 91 and 364 days, while cash management bills have maturity periods of up to 91 days.
Rising interest rates and mismatches in the government's cash balance led to the sharp rise. The yield on the 10-year benchmark government bond rose around 50 basis points in the April-June quarter, while it had declined by around 30 basis points in the year-ago period.
“The government won't be interested in raising funds for long tenors at high rates. Hence, it is covering its additional needs through short-term borrowings,” said Moses Hardings, head (global markets group), IndusInd Bank.
The government had skipped a couple of auctions in the long and medium tenors and had revised the treasury bills auction calendar upwards in the first quarter this year. As a result, interest rates in the short-term debt market shot up due to the excessive supply. The cut-off yields at the auctions of 91-day treasury bills rose more than 100 basis points in the first quarter.
According to RBI, cash management bills are issued to overcome temporary mismatches in the government's cash flow. However, it now seems the mismatch is taking a permanent shape, since the government continued issuing cash management bills in the second quarter as well. So far this month, treasury bills worth Rs 20,000 crore and cash management bills worth Rs 8,000 crore have been auctioned.
“If this goes on, increased short term borrowings may convert into more-than-planned long-term borrowings by the third or the fourth quarter. Long-term debt may increase by Rs 20,000-25,000 crore this financial year,” said Prasanna Patankar, senior vice-president, STCI Primary Dealership.
The government had pegged long- and medium-term borrowings at Rs 4.17 lakh crore in Union Budget 2011-12. The total amount raised through the sale of long- and medium-term government securities stood at Rs 120,000 crore as on July 1, compared with against Rs 151,000 crore as on July 2 2010.
