Government borrowings

to remain high: RBI official

BS REPORTER
Mumbai, 19 January

he Centres gross borrowings from the market are expected to

remain high even after fiscal
consolidation, as it will continue to see a dearth of funds
as long as the economy
expands, G Padmanabhan,
executive director of the
Reserve Bank of India (RBI),
has said.
He added though the government was committed to
fiscal correction and consolidation, challenges abounded
for markets and bond traders.
Addressing an annual
event of the Primary Dealers
Association of India, he said
gross bond supply would
remain high even after fiscal
consolidation. The government, he added, was likely to
continue running fiscal
deficits in the foreseeable
future, owing to accumulated debt stock that had to be
rolled over, as well as the
countrys growing gross
domestic product (GDP).
The National Democratic
Alliance government at the
Centre has committed to reining in subsidies and restricting its fiscal deficit to 4.1 of
GDP this financial year.

RBIS TAKE ON PRIMARY DEALER SEGMENT

| Role of PDs (primary dealers) becoming important in
market borrowing plans
| RBI to prescribe higher trading volume norms for PDs
| PDs have to do market making in more bonds
| Regulator warns dealers on market abuse
Primary dealers had
helped build a stable and
dependable
source
of
demand for securities in the
primary market and provided liquidity in the secondary
market, the RBI official said,
adding they had shown
resilience in challenging market conditions and ensured
non-disruptive borrowings.
Padmanabhan said the
demand for bonds would be
affected by factors such as a

pick-up in private sector credit and the policy stance on

foreign portfolio investment
in government bonds. Rolling
down held-to-maturity limits
would lead to a churn in the
portfolios of banks, especially public sector ones, he said.
In such a case, primary dealers would play a more active
role in market-making, he
added.
A working group led by
RBI
Deputy
Governor

R Gandhi has recommended

every primary dealer be allocated specific securities for
market-making.
Also, the stock of securities among primary dealers
should be rotated at periodic
intervals, the group has said.
RBI plans to operationalise
a market-making scheme in
2015-16 and expects a significant improvement in liquidity.
Padmanabhan hinted at an
upward revision in the obligation for turnover volumes. The
current annual minimum
turnover ratios of five times
the average month-end stocks
for government bonds and 10
times for treasury bills/cash
management bills should be
reviewed, as the market had
grown significantly in recent
years, he said.
Responsible bidding is
expected from primary dealers We look to them as
providers of valuable information about pricing of
bonds in auctions. RBIs
expectations on this count
are not fully met, at least in
some cases, he said.
There had been instances
of off-market transactions
involving institutional clients
of banks/primary dealers,
especially in the over-thecounter segment, he added.