RBI's 3rd tranche of OMP on June 17

Important to note that SDL purchases of Rs 100 bn was carved out of the third tranche of GSAP 1.0. In our opinion this is possibly an admission that the fund requirements of the State Governments would possibly be large and thus the spread of the SDL over G-secs can have a realistic chance of rising

Mumbai: As announced in the RBI Governor's statement of June 4, 2021, the Reserve Bank of India (RBI) will conduct the third tranche of open market purchase of government securities of Rs 40,000 crore under the G-sec Acquisition Programme (G-SAP 1.0) on June 17.

Of this, State development loans (SDLs) would be purchased up to Rs 10,000 crore. Accordingly, the Reserve Bank will purchase government securities and State development loans (SDLs) through a multi-security auction using the multiple price method, a statement from RBI said.

As per a report by credit rating and research agency Acuite, RBI continues its deployment of various monetary tools to control bond yields. Of the remaining tranche of G-SAP 1.0 announced earlier for Q1FY22, 25 per cent of the amount earmarked to SDLs. G-SAP 2.0 for Q2 announced and pegged at Rs 1.2 lakh cr.

According to a YES Bank economist study, RBI continues to show its intent to keep G-sec yields under control: The RBI continued to express its commitment towards adequate liquidity and orderly conditions in the government securities market so as to make sure that all borrowing costs remain range-bound and spreads remain compressed. While announcing the last tranche under G-SAP 1.0 worth Rs400 bn to be conducted on 17 June, the RBI also announced G-SAP 2.0 in Q2 FY22 for Rs 1.20 trn.

Important to note that SDL purchases of Rs 100 bn was carved out of the third tranche of GSAP 1.0. In our opinion this is possibly an admission that the fund requirements of the State Governments would possibly be large and thus the spread of the SDL over G-secs can have a realistic chance of rising. The RBI is likely to even continue with SDL purchases under G-SAP 2.0. The markets have, however, not responded too positively to the G-SAP announcement and the benchmark 10-year had been trading close to 6.02 per cent. This, along with the devolvement of G-secs on the PDs in the last round of auctions is a clear indication of market fatigue, it said.

The Reserve Bank reserves the right to decide on the quantum of purchase of individual securities, accept bids for less than the aggregate amount, purchase marginally higher/lower than the aggregate amount due to rounding-off and accept or reject any or all the bids either wholly or partially without assigning any reasons.

Eligible participants should submit their bids in electronic format on the Reserve Bank of India Core Banking Solution (E-Kuber) system between 10:00 am and 11:00 am on June 17. Only in the event of system failure, physical bids would be accepted. Such physical bid should be submitted to Financial Markets Operations Department.

The result of the auctions will be announced on the same day and successful participants should ensure availability of securities in their SGL account by 12 noon on June 18.

Reserve Bank will purchase the following government securities. There is no security-wise notified amount