Govt sharply raises H1 borrowing to Rs12 lakh crore

The "revision in borrowings has been necessitated on account of the Covid-19 pandemic", the government and the Reserve Bank of India said in two separate releases.

The government will now borrow Rs30,000 crore via a sale of bonds each week, sharply higher than the Rs19,000 crore- Rs 21,000 crore scheduled as per the borrowing calendar released at end-March.

After reviewing the government’s cash position and requirements, the government in consultation with the Reserve Bank of India, has decided to modify the indicative calendar for issuance of dated government securities for the remaining part of the first half of the fiscal 2020-21 (11 May to 30 September 2020).

The country is in a lockdown for eight weeks, causing massive economic losses and prompting Moody's to forecast a 0 per cent growth for this year.

The government sold a new 10-year paper at 5.79 per cent at an auction amid aggressive buying by state-run banks but the bullishness was likely to wane following the higher borrowing announcement.

Market participants are also eagerly awaiting the announcement of a second stimulus package from the government to gauge the extent of fiscal slippage that may happen.

As hitherto, all the auctions covered by the calendar will have the facility of non-competitive bidding scheme under which five per cent of the notified amount will be reserved for the specified retail investors.

Like in the past, the Reserve Bank of India, in consultation with the Government of India, will continue to have the flexibility to bring about modifications in the calendar in terms of notified amount, issuance period, maturities, etc and to issue different types of instruments, including instruments having non-standard maturity and Floating Rate Bonds (FRBs), including CPI linked inflation linked bonds, depending upon the requirement of the Government of India, evolving market conditions and other relevant factors, after giving due notice to the market. The calendar is subject to change, if circumstances so warrant, including for reasons such as intervening holidays. Such changes shall be communicated through press releases.

The Reserve Bank of India also reserved the right to exercise the green-shoe option to retain additional subscription up to Rs2,000 crore each against any one or more of the above security, which will be indicated in the auction notification.

The Reserve Bank of India will also be conducting switches of securities through auction on every third Monday of the month. In case third Monday is a holiday, switch auction will be conducted on fourth Monday of the month.

The estimated gross market borrowing in the financial year 2020-21 will be Rs12 lakh crore in place of Rs7.80 lakh crore as per BE 2020-21. The above revision in borrowings has been necessitated on account of the Covid-19 pandemic.