Govt to auction securities to fund Covid fight, pet plans

Business Economy Governance

The Centre has decided to auction government securities worth Rs 26,000 crore to raise funds for its pet projects and Covid-19 relief.

According to a press release, ‘The Government of India has announced the Sale (Re-issue) of (i) ‘4.26 percent Government Security, 2023’ for a notified amount of Rs 3,000 crore (nominal) through the price-based auction, (ii) ‘5.85 percent Government Security, 2030’ for a notified amount of Rs 14,000 crore (nominal) through price-based auction, and (iii) ‘6.76 percent GS 2061’ for a notified amount of Rs 9,000 crore (nominal) through price-based auction. GoI will have the option to retain additional subscription up to Rs 6,000 crore against the above security/securities.” 

The auctions will be conducted by the Reserve Bank of India on May 28.

Ankit Jain of Ankit R. Jain Associates Chartered Accountants informed The Observer: “The government sells its securities when they need funds. We know that there is a Central Vista project going on, which is to be completed by 2022 and, there is a need of funds for Covid relief, like oxygen plants. The securities up for auction are worth Rs 3,000 for 4.26 percent GS 2023 and Rs 14,000 for 5.85 percent GS 2030. The liability of financial burden is likely to fall on the next government.”

“As the government takes money from the market there will be fluctuations in the market. This will impact the reverse-repo rate (interest rate at which RBI borrows from other banks), which will likely increase. In the future, the government would try to reduce this rate in order reduce its liabilities,” added Jain. 

Parag Gupta, CA and professor at RKG Institute, said: “Governments usually issue such notifications when it is in need of funds, so it borrows. In this case, the decision coming at this hour seems to be taken to raise funds for Covid relief.”

The auctions will be held in the electronic format. Bidders have to file their bids on the RBI Core Banking Solution or E-Kuber system on the day of the auction. Both competitive and non-competitive bids will be accepted but in the allotted time slots. For non-competitive bids the slot is 10.30 am to 11.00 am and the competitive bids will be accepted till 11.30 am.

The results of the auction will be announced on the same day and successful bidders have to make the payment by May 31. Post-auction, 5 per cent of the securities’ notified amount will be allotted to the successful bidders.

The release added: “The Securities will be eligible for “When issued” trading in accordance with the guidelines on ‘When Issued transactions in Central Government Securities’ issued by the Reserve Bank of India vide circular No. RBI/2018-19/25 dated July 24, 2018, as amended from time to time.”

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