RBI raises Rs 20,000 Crores in record auction; India’s biggest debt auction ever

April 19, 2014

RBI fully sold the Rs 200 billion ($3.31 billion) worth of Government bonds on Thursday April 17, 2014, executing the India’s biggest-ever auction. Speculations ran in market that Life Insurance Corporation had bought a major portion of the debt at the auction. On Thursday April 17, 2014, the Benchmark bond yield ended down 11 basis points at 8.85%, the biggest single-day fall since 20 January, 2014.
This was India’s biggest debt auction ever.
What are Government Bonds?
Government bonds or Dated securities are long term Government securities with original maturity of one year or more. These are tradable instruments issued by the Central Government or the State Governments.
The Short term Government securities are called Treasury bills (maturities of less than one year). In India, the Central Government issues both, Treasury Bills and Bonds (Dated Securities) while the State Governments issue only Bonds (Dated Securities). The State Govt Bonds are called the State Development Loans (SDLs). Practically, Government securities carry no risk of default and, for this reason, are called risk-free gilt-edged instruments.
How are the Government Securities issued?
Government securities are issued via “Auctions” conducted by the Reserve Bank of India. Auctions are conducted on the electronic platform called the Negotiated Dealing System (NDS) – Auction platform.
What are the different types of auctions used for issue of securities?
Previous to introduction of “Auctions” as the process of issuance, the interest rates were administratively fixed by the Government. With the introduction of auctions, the Rate of Interest (Coupon Rate) gets fixed via a market based Price Discovery Process.
An auction may be:
a) Yield based Auction– Conducted when a new Government security is issued
b) Price based Auction– Conducted when Government of India re-issues securities issued earlier.