Debt management, big challenge for RBI in FY12

Moneycontrol Bureau

Increased government borrowing posed a challenge for the debt management operations of the Reserve Bank of India (RBI) in 2011-12. However, the central bank successfully completed the fund raising on behalf of the government of India through efficient open market operations (OMOs), a process through which the central bank buys or sells government securities from the market controlling liquidity in the system.

"With continuing inflationary pressure in 2011-12, the Reserve Bank hiked policy rates by 175 basis points in five stages. Liquidity conditions remained tight with a worsening in the last four months of the financial year, while there was an increase in government borrowing," said the RBI annual report for 2011-12.

"The Reserve Bank conducted the market borrowing programme with the objective of minimising the cost of borrowing for the government while pursuing debt maturity profiles that posed a low rollover risk."

The central government's gross market borrowing through dated securities was budgeted at Rs 4,17,100 crore , which was increased in two stages (September and December 2011) to Rs 5,10,000 crore (net Rs 4,36,400 crore) during 2011-12 as against  Rs 4,37,000 crore (net  Rs 3,25,400 crore) in 2010- 11.

The gross amount raised through dated securities and 364-day treasury bills in 2011-12 was higher by around 25% than in the previous year. The increase in actual market borrowing compared to the budget estimate was higher for the central government compared to the previous year.

Meanwhile, an amount of  around Rs 12,100 crore worth of government securities did not find interest from RBI auction bidders (it is called devolvement) and primary dealers had to subscribe it with an underwriting agreement during 2011-12 compared with Rs 5,800 crore in 2010-11.

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