Bonds fall on fears of bank reserve increase

Bonds fall on fears of bank reserve increase
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First Published: Tue, Feb 19 2008. 01 24 AM IST
Updated: Tue, Feb 19 2008. 01 24 AM IST
Mumbai: Government bonds fell on speculation that banks will slow purchases as the government considers allowing them to buy other types of securities to cover deposits.
Benchmark notes declined for the second day as banks may be permitted to use the so-called oil bonds to help them meet the “statutory liquidity ratio (SLR),” petroleum secretary M.S. Srinivasan had said on 15 February. The ratio, set by the central bank, requires lenders to hold a minimum 25% of deposits in approved low-risk securities. Oil bonds are debt given to refiners as partial compensation for selling fuel below cost.
“Allowing oil bonds under SLR would give banks options other than government bonds to meet investment requirements,” said S. Srikumar, a trader at Corporation Bank.
“That could hit demand for government securities.” The yield on the most-traded 7.99% note due July 2017 rose 4 basis points to 7.55% to close on Monday in Mumbai, according to the Reserve Bank of India’s trading system. The price fell 0.26, or 26 paise per Rs100 face amount, to Rs102.95. A basis point is 0.01 percentage point.
The oil ministry is seeking to allow bonds issued to refiners to be made eligible for investment under the statutory liquidity ratio, Srinivasan said. “We have taken it up with the finance ministry, and we expect a favourable consideration,” he said.
Bonds gained earlier after the government refrained from setting any debt auctions this week under its market stabilization plan for the first time in more than a month. The government sells debt to absorb excess money from the banking system that may stoke inflation.
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First Published: Tue, Feb 19 2008. 01 24 AM IST