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Govt borrowing to stay high after fiscal consolidation: RBI official

The Centre’s 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 country’s 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.

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. RBI’s 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-the-counter segment, he added.


  • 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

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