RBI’s Sovereign Bond Holding

It is estimated that the Reserve Bank of India (RBI) holds around ₹1 trillion in sovereign bonds which are maturing over the forthcoming financial year. Traditionally, the government would have swapped those maturing bonds for a longer dated debt, thereby reducing the gross borrowing target.

Important Points:

• So, Bonds Maturity
  • RBI has held onto treasury bonds worth ₹1 trillion, maturing for redemptions next year. 
• Swap Bemoaned As Undone
  • Normally, this maturing paper would have been swapped out with long-term debt well before the Budget to meet the estimated jump in the lower gross borrowing target end.
• Market-Based Approach
  • Though, the government does not plan a swap with RBI even this time also, however it plans to manage mature bonds in market-based operation.
  • The economic affairs secretary, Ajay Seth mentioned that government wishes to let out these bonds in the market be it is either public institution, or even the RBI.
• The gross borrowing target for 2025-26 has risen from ₹14.01 trillion in the current fiscal year to ₹14.82 trillion due to this move.

Implications

• Gross Borrowing Target
  • The decision manifests in the rise in the borrowing target as the maturing bonds will not be swapped for longer-term debt thus reducing the short-term borrowing requirement of the government at present.
• Market Approach
  • The process of addressing the maturing bonds under a market-based approach can reveal that the government prefers a more open and competitive process, an implication with broader market effects.