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The government repurchased Rs 24,453 crore worth of bonds through a buyback auction, which was conducted by the Reserve Bank of India on Thursday. The Centre had offered to repurchase Rs 25,000 crore worth of securities.
The process involves using government funds to buy back these bonds, which are then typically retired, decreasing the total outstanding debt. This strategy allows the government to improve its debt profile by repurchasing higher-cost or shorter-term bonds.
The government had offered to buy back the 7.72 per cent 2025 bond maturing on May 25, the 5.22 per cent 2025 bond maturing on June 15, the 8.20 per cent 2025 bond maturing on September 24, the 5.15 per cent 2025 bond maturing on November 9, and the 7.59 per cent 2026 bond maturing on January 11.
The demand at the auction was better than the previous buyback auctions conducted by the RBI in the current financial year.
“The demand was better because the yields have softened and it was a good chance for the banks to off-load some securities,” said the treasury head at a private bank.
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By repurchasing its own outstanding bonds from the market before they mature, the government reduces its liabilities and strengthens its fiscal position.
“After the new portfolio norm, banks are not able to move their securities from the HTM category, so this was a good chance to sell bonds without affecting the 5% limit,” said VRC Reddy, head of treasury at Karur Vysya Bank.
Under the new norm, banks must categorise bonds as “held-to-maturity” on a permanent basis, with the exception of 5 per cent of the portfolio that can be withdrawn throughout the year. Any deviation from this rule requires approval from both the bank’s board and the RBI.
Earlier, banks were allowed to reclassify their investments between categories once a year on the first day of the financial year, through which they used to book capital gains.
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