A Closer Look
The Reserve Bank of India (RBI) recently announced a buyback of government securities worth Rs 40,000 crore. This move aims to inject liquidity into the banking system and manage yields.
6.18% GS 2024, maturing on November 4, 2024
9.15% GS 2024, maturing on November 14, 2024
6.89% GS 2025, maturing on January 16, 2025
There is no specific amount allocated to each security within the total limit of Rs 40,000 crore. The auction will be conducted using a multiple price method on May 9, 2024, between 10:30 am and 11:30 am. The results will be announced on the same day, and settlement will occur on May 10, 2024.
Liquidity Injection: The buyback will release liquidity into the banking system, currently facing a deficit of Rs 78,481 crore as of May 2, 2024. This will help ease the liquidity crunch and support economic activity.
The buyback can also be seen as a yield management exercise, potentially influencing shorter-term yields. However, the RBI has other options for direct and indirect yield management.
The timing of the buyback coincides with the government's annual dividend payment from the RBI, further bolstering its cash position.
With government expenditure unlikely to pick up before the new government takes charge, the buyback is expected to bring down shorter-term yields.
Overall, the RBI's securities buyback is a strategic move to address liquidity concerns and manage yields, contributing to a more stable and supportive financial environment.