The Telegraph
Since 1st March, 1999
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Bond rush to soak liquidity

New Delhi, March 25: The BJP-led central government today announced plans to sell Rs 59,000 crore worth of government securities (G-Secs) in the first six months of the fiscal beginning April 1 as part of its annual borrowing plan.

The government has borrowed Rs 80,000 crore in the first half of the current fiscal, well above its Rs 71,000-crore target.

The government also plans to sell Rs 35,500 crore of treasury bills and dated securities, which are being dubbed as market-stabilisation bonds, expenditure secretary D. Swarup said here today. These bonds will be sold between April 1 and June 30 to suck out the excess liquidity in the system, the government said.

The central government today also gave permission to the Reserve Bank of India to sell Rs 60,000 crore worth stabilisation bonds to drain cash from the banking system. The Reserve Bank will retain the proceeds and won't transfer them to the government.

Swarup said the states will be allowed to raise Rs 12,000 crore by way of additional market borrowings to prepay their high-cost debt to the central government under the debt-swap scheme in the first half of 2004-05.

Taking into account the anticipated transfer of Rs 12,000 crore from small savings collections, the aggregate expected prepayments by the states would be around Rs 24,000 crore under the debt-swap scheme in the first half of 2004-05.

Stabilisation bonds worth Rs 5000 crore with a maturity of one to two years will be put on sale between April 2 and April 7, finance ministry officials said.

It will also sell Rs 1,500 crore of 91-day treasury bills on April 7. The next sale of 91-day bills worth Rs 1,500 crore and 364-day bills worth Rs 1,000 crore will be on April 13.

The G-Secs to be auctioned as part of its borrowing programme will be sold between April and September and will carry maturity periods ranging from five to 20 years.

All G-Sec auctions will have the facility of non-competitive bidding under which 5 per cent of the amount will be reserved for specified retail investors.

Floating rate bonds will account for about 10 to 20 per cent of the total issuance, depending upon market response, explained officials.

Dada-Dadi deferred

North Block officials said the government has postponed the sale of bonds planned for citizens above 60 years of age as this could violate the election code. These bonds were expected to hit the market on April 1. The coupon rate on the bonds will be decided by the end of May, officials said.

The bonds will be offered to citizens above 60 years at a higher interest rate than that prevailing in the market under a scheme dubbed the Dada-Dadi bonds. This was announced by finance minister Jaswant Singh as part of his interim budget.

Officials also said North Block would review the interest rate paid on postal savings and other government-administered savings schemes in the future.

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