Underlying fundamentals are conducive for supporting government borrowing programme. The recent experience of private placements cum tap sale of two securities, viz., 11 per cent Government Stock, 2006 and 11.30 per cent Government Stock 2010 indicated that there was still an underlying appetite for the long term loan. Given such conducive environment, the government would continue to focus on elongating the maturity profile of its securities and achieve a balance between short term and long term papers in a cost-effective manner. This was stated by Shri P R Gopala Rao, Executive Director, Reserve Bank of India while inaugurating a money and securities market conference held in Hyderabad toady. The Reserve Bank, as the debt manager of the Government, would pursue appropriate policies to help the government achieve this objective, he added.

Elaborating on this further, the executive director said that the net market borrowing programme for the current fiscal was budgeted at a Rs.76,383 crore. With the repayment obligations at Rs.41,321 crore, the gross borrowing requirements of the Central Government amount to Rs. 1,17,704 crore. So far, the Government had raised Rs.56,683 crore (gross) representing 48 per cent of the total targetted borrowing. He further added that there was a strong possibility that the market borrowings would not exceed the budgeted amount as the relative budgetary variables had been estimated pragmatically making it possible for the Government and the Reserve Bank to continue with its policy objectives.

On the recent monetary measures announced by the Reserve Bank of India, the executive director explained that the measures were warranted by technical factors to address the what are otherwise construed as transitory developments in the market. He pointed out that there was an uptrend in the yields of government paper even before the measures were announced. In this context, he urged the market participants to rationalise the developments contextually.

Dwelling further on the role of primary dealers, the executive director stated that the primary dealers should play a role in stabilising the markets for Government securities. Pointing out that adequate support was extended by the Reserve Bank to the primary dealers in their endeavour to meet their goals, the executive director advised them to gradually become self-dependent and explore additional sources of funds.

He said the institutional role of the primary dealers was one of market-making. He desired that the primary dealers should enhance their lending and borrowings through the repo market. Apart from imparting liquidity, this would help enlarge the secondary repo market.

Referring to the discussion on the development of the retail market for Government securities, the executive director stated that technological upgradation was a part of the reform of debt market. He informed that the Reserve Bank was planning to set up an Electronic Dealing System to facilitate electronic bidding in the auctions and also dealing in Government securities and money market instruments among market players and with the Reserve Bank. According to the executive director, the Reserve Bank’s initiative would provide the market greater transparency on prices and volumes traded on real time basis. To facilitate settlement in Government securities transactions, dealing system would be linked to securities settlement system in the public debt offices of the Reserve Bank. This would include screen based trade reporting system for settlement supported by the Reserve Bank’s INFINET as the communications backbone.

In this context, he noted that a proposal to set up a debt clearing corporation was received from the primary dealers and action to establish such a corporation was being initiated. He added that a core group was set up to prepare the project road map for setting up of the clearing corporation for debt securities. He pointed out that to begin with, the clearing corporation would be for settlement of all Government securities and other debt securities in demat form to facilitate repo transactions by all the market participants as also for money market and forex settlement. He hoped that the new system would broaden the participation in the auction system and improve the speed of settlement of secondary market transactions. He also hoped that some more concrete suggestions would emerge out of the deliberations at the conference.

Stating that the policy making process at the Reserve Bank was now consultative and quite transparent, Shri Gopala Rao said that from July 31, the Reserve Bank would announce the results of its liquidity adjustment facility at 12. 30 p.m. He hoped that this measure would give the market participants sufficient time to assess their funds requirements and act appropriately. Currently, the Reserve Bank announces the LAF results at 1 p.m. Many market players, including some primary dealers had, among other things, suggested that the Reserve Bank should advance the time for announcing the results of LAF so as to enable the market players to adjust their liquidity in the market, if need be, after the Reserve Bank’s auction is completed. Emphasising that the scheme of liquidity adjustment faciltiy was working well, the executive director affirmed that it eventually would meet its ultimate objective in providing desirable quantum of liquidity according to the needs of the system with flexible rates as also helping the short term money market interest rates move within a corridor and impart greater stability.