Mumbai/New Delhi: The central government will borrow Rs3.72 trillion from the bond markets in the first six months of 2017-18—equivalent to 64% of its total borrowings planned for the entire fiscal year. In a notification on Tuesday, Reserve Bank of India said the borrowing will take place in 24 transactions and a significant part of the borrowing will be in 20-year bonds, as the government looks to lengthen the maturity profile of its borrowings.
“Normally, every year, we borrow 60-62% in the first half of the year; this year, it is marginally higher at 64%,” said economic affairs secretary Shaktikanta Das. This borrowing number translates into an average of Rs15,500 crore every week.
The Union budget for 2017-18 had pegged the government’s gross borrowing in 2017-18 at Rs5.8 trillion. Accounting for redemptions of Rs1.5 trillion, the net borrowing number for the year will touch Rs4.3 trillion.
About 90% of redemptions will happen in the first half of the year, said Das.
In this round, bonds with maturities of 20 years and more could make up to one-fifth of total borrowings.
“The focus in planning the open market borrowing is to elongate the maturity profile and also to undertake it in the most non-disruptive manner,” Das said.
“At the moment, the maturity profile of all G-Secs (government securities) is about 10.5 years. The next year’s G-Secs which are going to be auctioned will have a maturity profile of 14.7 years,” Das said.
Traditionally, the bulk of government borrowings have happened through 10-year maturity bonds, which are considered the benchmark. Long-term bonds are bought by pension funds and insurance companies.
“The government usually front-loads its borrowing because there is less time in the second half of the year. Mostly, it doesn’t borrow after the budget. This year, the demand for government securities is expected to go beyond the supply. The yields are expected to be in the 6.40-6.80% range,” said Ajay Manglunia, executive vice-president and head of fixed income at Edelweiss Capital.
Despite foreign institutional investors buying $3.58 billion of bonds in the last two months, bond yields have increased by 30 basis points from 6.4% to 6.71%.
PTI contributed to this story.