The Reserve Bank could conduct debt management operations during the year in an orderly manner despite
facing challenges emanating from exchange rate volatility and inflationary pressures. Under the switch operations
in G-secs, some of the near term maturing debt with institutional investors was switched to long-term debt.
Also, buyback of debt from the market was undertaken through reverse auctions. These actions contributed
to strengthening the maturity structure of the government debt, improving liquidity in the debt market and
mitigating rollover risks.
VII.1 The central government’s high borrowing
requirement during 2013-14 along with inflationary
pressures and adverse market conditions on
account of exchange rate volatility were the major
challenges in debt management during the year.
Notwithstanding these challenges,borrowing
programme was conducted in a smooth and orderly
manner in co-ordination with the government. The
debt management strategy focused on elongating
maturity with a view to containing rollover risk, given
the limited scope to issue securities in the less than
10 years maturity buckets. It also undertook
switching operations whereby short-term debt was
replaced with longer maturity debt to reduce rollover
risks. It also conducted the buyback of short-term
debt to reduce short-term redemption pressure.
The borrowing programmes of state governments
were also conducted smoothly.
DEBT MANAGEMENT OF THE CENTRAL
GOVERNMENT
Market Borrowings
VII.2 The gross and net amounts raised through
dated securities in 2013-14 were marginally higher than the amount raised in the previous year (Table
VII.I). As compared to 2004-05, the Centre’s net
market borrowings stood 10 times higher. The
volatile market conditions, particularly during July-
September 2013-14, posed further challenges. The
Reserve Bank switched to uniform price auctions
in dated GoI securities to enhance market
participation in uncertain market conditions. As
compared to the previous year, there was a
marginal increase in cost (8.45 per cent versus 8.36
per cent) and higher devolvement on primary
dealers (securities of `175 billion in 26 auctions as
compared to `18 billion in 3 auctions during the
previous year).
VII.3 To ease the redemption pressure for
financial year 2014-16, switch operations in G-secs
for `317 billion were carried out with institutional
investors. Buyback of short-term securities
amounting to `156 billion from the market was
completed through reverse auctions in March 2014.
VII.4 The average maturity of debt issuances
(based on original maturity) during 2013-14
increased to 15.1 years from 13.5 years in 2012-13.
Table VII.1: Gross and Net Market Borrowings of the Central Government # |
(` billion) |
Item |
2004-05 |
2011-12 |
2012-13 |
2013-14* |
2014-15 (BE)* |
1 |
2 |
3 |
4 |
5 |
6 |
Net Borrowings |
460 |
4,364 |
4,674 |
4,685 |
|
|
(905) |
(3,430) |
(4,790) |
(4,840) |
(4,612) |
Gross Borrowings |
803 |
5,100 |
5,580 |
5,635 |
|
|
1,248 |
(4,171) |
(5,696) |
(5,790) |
(6,000) |
#: Issuances through dated securities.
*: Excludes buyback / switches.
Note: Figures in parentheses are budget estimates.
|
Table VII.2: Central Government’s Market Loans-A Profile# |
(yield in per cent / maturity in years) |
Year |
Range of YTMs at Primary Issues |
Issues during the year |
Outstanding Stock
(As at end-March) |
under 5 years |
5-10 years |
Over 10
years |
Weighted
Average
Yield |
Tenor of
securities
(Range) |
Weighted
Average
Maturity |
Weighted
Average
Maturity |
Weighted
Average
Coupon |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
2008-09 |
7.71-8.42 |
7.69-8.77 |
7.77-8.81 |
7.69 |
6-30 |
13.80 |
10.45 |
8.23 |
2009-10 |
6.09-7.25 |
6.07-7.77 |
6.85-8.43 |
7.23 |
5-15 |
11.16 |
9.82 |
7.89 |
2010-11 |
5.98-8.67 |
7.17-8.19 |
7.64-8.63 |
7.92 |
5-30 |
11.62 |
9.78 |
7.81 |
2011-12 |
8.21-8.49 |
7.80-10.01 |
8.25-9.28 |
8.52 |
7-30 |
12.66 |
9.60 |
7.88 |
2012-13 |
8.82-8.21 |
7.86-8.76 |
7.91-8.06 |
8.36 |
5-30 |
13.50 |
9.67 |
7.97 |
2013-14 |
7.22-9.00 |
7.16-9.40 |
7.36-9.40 |
8.45 |
6-30 |
15.05 |
10.00 |
7.98 |
YTM: Yield to Maturity. #: Excludes issuances under MSS. |
The weighted average maturity of the outstanding
stock (based on residual maturity) increased to 10
years as on March 31, 2014 from 9.7 years as on
March 31, 2013. The weighted average yield of
dated securities issued (primary market) during the
year increased by 9 bps to 8.45 per cent in 2013-14
from 8.36 per cent in 2012-13. The weighted
average coupon on the outstanding stock of
government dated securities (excluding inflation
indexed bonds of `65 billion) increased marginally
to 7.98 per cent as on March 31, 2014 from 7.97
per cent as on March 31, 2013 (Table VII.2).
VII.5 During 2013-14, 57 per cent of the market
borrowings were raised through issuance of dated
securities with residual maturity of more than 10
years (Table VII.3). To mitigate the bunching risk,
the share of securities with more than 15-year
maturity in the total issuance was increased to 33.4
per cent during the year from 26.5 per cent during
2012-13. Commensurately, the share of securities
with less than 5-year maturity was reduced from
8.4 per cent to 2.0 per cent during 2013-14.
VII.6 The actual gross market borrowings of the
central government for 2013-14 were reduced from
the budgeted amount of `5,790 billion to `5,635
billion (97.3 per cent of the budgeted amount) as
compared to `5,580 billion raised in 2012-13. As
per the Union Budget 2014-15, the gross market
borrowings through dated securities are placed at
`6,000 billion, an increase of 6.5 per cent over the previous year (`5,635 billion) while net borrowings
are budgeted lower at `4,612 billion, a decline of
1.6 per cent over `4,685 billion. Market borrowings
of `2,700 billion have been completed up to August
04, 2014. Weighted average yield during the period
increased to 8.84 per cent from 7.75 per cent in the
same period of 2013-14, while weighted average
maturity declined to 14.14 years from 14.49 years.
Table VII.3: Issuance of GoI Dated Securities - Maturity Pattern |
(Amount in ` billion) |
Residual Maturity |
2011-12 |
2012-13 |
2013-14 |
Amount
raised |
Percentage
to total |
Amount
raised |
Percentage
to total |
Amount
raised |
Percentage
to total |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
Less than 5 years |
180 |
3.50 |
470 |
8.42 |
110 |
1.95 |
5 -9.99 years |
2,340 |
45.88 |
1,910 |
34.23 |
2,305 |
40.91 |
10-14.99 years |
1,230 |
24.12 |
1,730 |
31.00 |
1,340 |
23.78 |
15 -19.99 years |
650 |
12.75 |
270 |
4.84 |
930 |
16.50 |
20 years & above |
700 |
13.73 |
1,200 |
21.51 |
950 |
16.86 |
Total |
5,100 |
100.0 |
5,580 |
100.00 |
5,635 |
100.00 |
VII.7 The yields on treasury bills hardened during
the year reflecting a change in the monetary policy
stance. Subsequent to the liquidity tightening
measures introduced in mid-July 2013, yields
peaked to 12.02 per cent, 12.01 per cent and 10.46
per cent, respectively, for 91-day, 182-day and 364-
day T-bills. Primary market yields on the same stood
at 8.86 per cent, 8.86 per cent and 8.89 per cent,
respectively, at the last auction held in March 2014
which were higher by 67, 85 and 110 basis points
than the respective yields at end-March 2013.
VII.8 Cash management bills (CMBs) were
issued for `1,072 billion during July-September
2013 to manage the cash requirements of the
government as well as to calibrate system liquidity
for exchange rate management. The yield on CMBs
ranged from 10.36 per cent to 12.28 per cent.
VII.9 Inflation indexed bonds (IIBs) for institutional
investors were launched in June 2013 for an
aggregate amount of `65 billion during 2013-14.
IIBs for retail investors, namely, Inflation Indexed
National Saving Securities–Cumulative (IINSS-C),
were launched in December 2013. The response
to these bonds was subdued due to its timing
coinciding with the issue of various tax free bonds
by PSUs, some of its design features and lack of
product awareness among retail investors.
Cash Management
VII.10 The Government of India started the year
2013-14 with a surplus cash balance of `1,166
billion, but it took recourse to ways and means
advances (WMA) on June 12, 2013 due to its
expenditure commitments (Chart VII.1). It availed
of WMA on ten occasions before building a positive
balance starting December 7, 2013. Such a positive
balance was maintained till end-March. The
government ended the fiscal year with cash
balances at `1,284 billion. During 2013-14, the
government availed of WMA for 42 days and OD
for 9 days (on 3 occasions) as compared to WMA
for 40 days and no OD in the previous year.
VII.11 During 2013-14, WMA limits were fixed at
`300 billion for April 1-September 30, 2013 and
`200 billion for October 1, 2013- March 31, 2014.
WMA limit for the first half of the financial year
2014-15 has been fixed at `350 billion.
DEBT MANAGEMENT OF STATE
GOVERNMENTS
Market Borrowings
VII.12 The net allocation under the market
borrowing programme for state governments for
2013-14 was placed at `2,185 billion. Taking into
account the repayments of `321 billion, the gross
allocation amounted to `2,506 billion. State
governments raised a gross amount of `1,967
billion in 2013-14 as against `1,773 billion in the previous year (Table VII.4). Two states (Assam and
Odisha) did not participate in the market borrowing
programme in 2013-14 as against one state
(Odisha) in 2012-13. Twelve states did not utilise
their full sanctions in 2013-14 as against 11 such
states in 2012-13.
Table VII.4: States' Market Borrowings |
(` billion) |
Item |
2011-12 |
2012-13 |
2013-14 |
2014-15 |
1 |
2 |
3 |
4 |
5 |
Net Allocation |
1,459 |
1,881 |
2,185 |
NA |
Additional Allocation |
157 |
0 |
0 |
NA |
Maturities during the year |
220 |
306 |
321 |
|
Gross Allocation |
1,835 |
2,187 |
2,506 |
NA |
Gross Sanctions under Article 293 (3) |
1,634 |
1,861 |
2,174 |
898* |
Gross Amount Raised during the Year |
1,586 |
1,773 |
1,967 |
599* |
Net Amount Raised during the Year |
1,366 |
1,467 |
1,646 |
440* |
Amount Raised during the year as a % of Total Sanctions |
97 |
95 |
90 |
67* |
SDLs outstanding (at the end of the period) |
7,424 |
9,291 |
10,418 |
NA |
*: Up to 31st July, 2014. |
VII.13 The weighted average yield of state
government securities issued during the year stood
higher at 9.18 per cent as compared to 8.84 per
cent during the previous year, tracking the general
interest rate movements. The weighted average
spread over the central government’s weighted
average yield increased to 75 bps during the year
from 71 bps during the previous year. The actual
market borrowings of state governments were
broadly in alignment with the quantum indicated at
the beginning of each quarter.
VII.14 During 2013-14, 26 tranches of auctions,
spread over all the months of the year, were held
for state governments’ market borrowing
programmes as compared with 28 tranches in the
previous year. On an average, 10 state governments
participated in an auction in 2013-14 as compared
to 8 in 2012-13. As in the previous year, in addition
to regular 10 year maturity bonds, SDLs of varying
maturities of 4 and 5 years were issued and the
response to them was good.
Cash Management
VII.15 The aggregate WMA limit at `102 billion for
states, including the Union Territory of Puducherry
was revised by 50 per cent of the existing limit from
November 11, 2013 to `154 billion. The rate of
interest on WMA, special drawing facility (SDF) and
OD continued to be linked to the repo rate. The
monthly average utilisation of SDF, WMA and OD
by the states is given in Table VII.5.
VII.16 As compared to previous year, 2013-14
witnessed 13 states resorting to WMA as against
8 states, 13 states resorting to SDF against 9 states
and 8 states resorting to OD against 6 states. The
aggregate WMA limit for the state governments
inclusive of the Union Territory of Puducherry is
placed at `153.6 billion for the year 2014-15.
VII.17 The surplus cash balances of state
governments are automatically invested in 14-day
intermediate treasury bills (ITBs) of the central
government. The Government of India continued
to remunerate ITBs at a fixed rate of 5 per cent. The
daily average investment in 14-day ITBs declined
by about 15 per cent to `726 billion from `849 billion
last year. States’ outstanding investments in ITBs
stood at `862 billion as at end-March 2014 as
against `1,181 billion as at end-March 2013. The
daily average investment of state governments in auction treasury bills (ATBs) increased to `597
billion from `441 billion in the previous year. The
outstanding investment of state governments in
ATBs at end-March 2014 was higher at `463 billion
as against `286 billion at end-March 2013.
Table VII.5: Utilisation of WMA/OD and Investment of State Governments
(Average monthly outstanding) |
(` billion) |
Months |
SDF# |
WMA |
Overdraft |
Total |
2012-13 |
2013-14 |
2014-15* |
2012-13 |
2013-14 |
2014-15* |
2012-13 |
2013-14 |
2014-15* |
2012-13 |
2013-14 |
2014-15* |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
11 |
12 |
13 |
April |
5.0 |
0.8 |
9.1 |
4.0 |
3.1 |
7.8 |
3.0 |
1.9 |
4.1 |
12.0 |
5.8 |
21.0 |
May |
1.0 |
0.6 |
1.8 |
0.3 |
1.5 |
5.8 |
0.0 |
0.3 |
1.0 |
1.4 |
2.4 |
8.6 |
June |
0.6 |
5.7 |
2.4 |
2.0 |
5.0 |
6.6 |
0.2 |
1.9 |
1.0 |
2.8 |
12.6 |
10.0 |
July |
2.0 |
1.9 |
0.1 |
2.0 |
2.9 |
5.2 |
0.8 |
0.6 |
0.3 |
4.8 |
5.4 |
5.6 |
August |
0.6 |
3.3 |
|
1.0 |
2.7 |
|
0.3 |
2.9 |
|
1.9 |
8.9 |
|
Sept |
4.0 |
3.3 |
|
4.0 |
1.8 |
|
2.0 |
0.6 |
|
10.0 |
5.7 |
|
Oct |
5.0 |
7.2 |
|
4.0 |
3.8 |
|
1.0 |
0.1 |
|
10.0 |
11.1 |
|
Nov |
5.0 |
0.8 |
|
4.0 |
0.0 |
|
1.0 |
0.0 |
|
10.0 |
0.8 |
|
Dec |
4.0 |
1.5 |
|
4.0 |
3.7 |
|
2.0 |
0.0 |
|
10.0 |
5.2 |
|
Jan |
0.6 |
6.9 |
|
1.0 |
5.2 |
|
0.1 |
1.0 |
|
1.7 |
13.1 |
|
Feb |
0.1 |
0.7 |
|
3.0 |
4.1 |
|
2.0 |
0.3 |
|
5.1 |
5.1 |
|
Mar |
0.9 |
0.2 |
|
1.6 |
4.0 |
|
4.9 |
2.8 |
|
7.4 |
7.0 |
|
Note: Interest rate on SDF: 1 per cent below repo rate; WMA: repo rate for a period of 1-90 days and 1 per cent above repo rate for the period beyond 90 days; and OD: 2 per cent above repo rate for OD up to 100 per cent of WMA and for OD exceeding 100 per cent of WMA at 5 per cent above the repo rate.
#: With effect from June 23, 2014, the nomenclature of special ways and means advances has been changed to special drawing facility (SDF).
*: Up to 31st July, 2014.
|
VII.18 The central government’s Budget 2014-15
projected a moderate increase in gross market
borrowings over the previous year. Continuing with
the active debt management strategy adopted
during 2013-14, the Budget has also made a
provision of switching/buyback of debt. With the
macroeconomic conditions manifesting signs of stability and inflationary pressures somewhat
moderating, the market borrowings programme
during 2014-15 is likely to be conducted smoothly.
VII.19 Nevertheless, debt management during
2014-15 may have to deal with other evolving
challenges, viz., reduction in the statutory liquidity
ratio (SLR) for banks which provides demand for
government securities (G-secs), likely pick-up in
private credit off-take on the back of improvements
in the economy and limited issuance space below
10 years maturity arising from huge redemption
pressures in this bucket.
|