Centre may lower discount to draw more participation
Reserve Bank of India (RBI) sources said the Life Insurance Corporation of India (LIC), which was not keen on participating in the scheme, has nevertheless turned out to be the largest seller unloading Rs 7,000 crore of gilts, along with State Bank of India (SBI).
This amount is minuscule given that the total holding of such gilts by the LIC is around Rs 40,000 crore.
The total amount targeted by the government was Rs 1 lakh crore. The other major participants were Punjab National Bank, which reportedly sold securities worth over Rs 1,000 crore and Bank of Baroda which disposed of Rs 600 crore of papers.
Most of the other banks sold securities worth below Rs 100 crore. The apex bank also officially confirmed that LIC and SBI together turned out to be the largest seller.
The government had previously considered raising some Rs 80,000 crore. Later, the number of securities on offer was increased and the target was raised to Rs 1,00,438 crore.
However, finally it received bids for only Rs 14,434 crore of securities (face value) which came from 131 offers for 19 securities.
Meanwhile, sources said the lukewarm response to the buyback scheme has induced the Union Government to go for another second round of the scheme possibly at lower discounts.
"The government has been able to get only 14 per cent of the target amount as the response was poor due to high discount of 7.5 per cent sought by the government. There are strong indications that government will come back with a second buyback scheme with lower discount," several bankers from treasury department said.
Bankers participating in the scheme said that the maximum discount offered should not have been more than five per cent, beyond which interest in participating in the scheme will tend to fall, which was the case last Saturday.
Sources also said that the average minimum discount cut-off was as low as 7.68 per cent, just 18 basis points above the minimum discount of 7.50 per cent announced by the government.
The premium payout to bidders at 7.5 per cent would work out to a little more than Rs 2,000 crore, said bankers. Earlier the finance secretary, at the time of announcing the scheme, had said that the premium payout amount would be between Rs 5,000-6,000 crore.
