RBI To Auction Government Securities Worth Rs 25,000 Crore On October 13

The Reserve Bank of India (RBI) will auction government securities worth Rs 25,000 crore through an open market operation (OMO) auction on October 13. The move comes at a time when banks are holding a large amount of surplus funds.

The central bank has listed six government securities for the auction, with maturity dates between March 2030 and April 2034. It has not fixed separate sale amounts for individual securities.

Six Government Securities On Offer

The securities available for the auction are the 7.88 per cent Government Security 2030, 6.10 per cent Government Security 2031, 7.95 per cent Government Security 2032, 7.26 per cent Government Security 2033, 7.18 per cent Government Security 2033, and 7.10 per cent Government Security 2034.

The central bank will decide how much of each security to sell. It can also accept bids for an amount lower than the total Rs 25,000 crore on offer. The monetary authority holds the discretion to accept or reject any bid, either fully or partly, without giving a reason.

OMO Sales And Banking Liquidity

An open market operation is a tool the monetary authority uses to manage the amount of money available in the banking system. When the central bank sells government securities, banks and other buyers pay for them, transferring money to the central institution. However, this reduces funds available in the banking system.

As of October 8, surplus liquidity in the banking system was estimated at around Rs 3.88 lakh crore, according to a news report by PTI. The RBI has been conducting variable rate reverse repo auctions over the past two months to absorb excess funds and bring overnight money market rates closer to the repo rate.

In a variable rate reverse repo auction, banks park their surplus funds with the central bank for a specified period and earn interest on them.

FCNR(B) Deposits Add To Surplus Funds

A major source of the excess liquidity has been the large inflow of foreign currency non-resident, or FCNR(B), deposits mobilised by banks. These deposits bring foreign currency into the banking system. When banks enter into currency swaps with the central authority, they receive rupee funds, adding to domestic liquidity.

Government spending has also contributed to the surplus. Payments towards salaries, pensions and other expenses around the end of the month have added money to the banking system.

On October 6, RBI Governor Sanjay Malhotra, during a post-policy press conference, indicated that the central bank expects to absorb the excess liquidity within the current financial year. The process could involve currency leakage, central bank liquidity operations and changes in banks' reserve requirements.