Mumbai: The biggest holders of India’s sovereign debt are dumping. State lenders have been selling Rs470 crore ($73 million) of government bonds on average every day this year, hurt by deep portfolio losses, data from the Clearing Corp. of India show. Last year, their net daily inflows totaled Rs36.8 crore, and in 2016, the run rate was at Rs300 crore a day.
Their sale in a market where there’s a paucity of buyers is contributing to a vicious downward spiral, where losses keep worsening. It will be difficult for debt auctions to sail through without participation from the state banks when Prime Minister Narendra Modi’s new borrowing program begins in April, according to Sandeep Bagla, associate director at Trust Capital Services in Mumbai.
“State-run banks have reduced secondary market activity, which is impacting volumes in a big way," said Bagla. “They are investing selectively in state government bonds, but staying away from federal bonds."
The average daily volumes on the central bank’s trading system have dropped to Rs30,700 crore since 1 January, from Rs38,500 crore in 2017. Sovereign bonds in India have sold off for six consecutive months, hurt by concerns of a wider government deficit and higher oil prices. Bloomberg