������������
Rural Credit Structure Needs Genuine Revitalisation
The target for doubling of bank credit for agriculture in three years is being obviously met because of a dictate from the government but the quality of such lending will be weak and a large proportion will come back as non-performing assets. Without the expansion of the rural branch network by the financially strong and dominant public sector banks with staff appropriately qualified for dealing with agriculture and micro enterprises, the objective of a rapid credit expansion is sure to be stifled. These banks have to expand their network even as they co-opt cooperatives and other local agencies to supplement their banking business and undertake to expand their credit base in the informal sector.
EPW RESEARCH FOUNDATION
I Question of Credit Distribution
U
The incidence of financial exclusion has been fairly well-documented, thanks to the NSSO and other field surveys, and it is widespread and mindboggling. Of the 148 million rural households, more than 60 per cent receive no loans from institutional or non-institutional agencies. Of the 89 million farmer households, more than 50 per cent do not enjoy any such loan facility. Amongst the indebted rural or farm households, about 43 per cent are serviced by moneylenders and other non-institutional agencies. For the first time after independence, the share of institutional agencies in total rural indebtedness has slipped from 64 per cent in 1991 to 57 per cent in 2002; the share of moneylenders alone has shot up from 17.5 per cent to 29.6 per cent. Thus, about 48 per cent of all rural households, 51 per cent of farm households and 78 per cent of rural non-farm households do not have access to banking services.
The poor access to bank credit is much more severe amongst unorganised nonfarm enterprises. According to data in one NSSO round, only 4.13 per cent of these enterprises had access to institutional credit and another 4.10 per cent had access to non-institutional credit including those from relatives and moneylenders. Thus, of the estimated 58 million of enterprises as of March 2007, a preponderant number, therefore, is without institutional credit support. What is more, their ranks are swelling with an absolute reduction in organised sector employment and with over 70 per cent of cultivator households being marginal farmers (72 million of operational holdings) and not being able to eke out a decent living in farming, are possibly craving for opportunities in allied activities and outside farming, as micro enterprises.
Against this background, the challenges for the banking system are truly mindboggling if it has to subserve broader developmental goals. But serious misgivings arise because during the past few years no less than 20 committees and working groups have looked into and lamented the poor credit delivery arrangements for agriculture, small-scale industries and other informal enterprises as well as for the underdeveloped regions. Almost all of their recommendations have been faithfully commended to the banks for implementation, but the deterioration in the arrangements has persisted.
The socio-political reaction to this situation in the recent period has no doubt attracted government attention but the response has been knee-jerk and halfhearted. The serious vacuum created in the rural credit architecture has not been addressed. Without the expansion of the rural branch network by the financially strong and dominant public sector banks with appropriately qualified staff for diversified agriculture and micro enterprises, the objectives of rapid credit expansion are sure to be stifled. The targets set for doubling of bank credit for agriculture in three years and for small and medium enterprises in five years is being obviously met because they are the result of a government dictate but the quality of lending is sure to be weak, their functional and regional distributions would be distorted, and a large proportion of them would come back as non-performing assets.
Attempts to use the model of “agency banking” with business correspondents and business facilitators as components are not taking off the ground and it is unlikely to be so, except in the case of one private sector bank, which is also because of the admirable inspiration and dynamism exhibited by one individual. The banking system requires a more broad-based and strong institutional structure reasonably widespread regionally and functionally. In this respect, the reach as well as the financial strength of the regional rural banks (RRBs) being weak, their reorganisation, while it is called for, is unlikely to meet the needs of the vast regions of the national economy. Likewise, the system of micro-credit enterprises, while they have a role and are useful for the marginal sections particularly women, they cannot substitute for a well-designed rural credit structure. The
Economic and Political Weekly May 19, 2007
(Rupees Thousand Crore)Weighted Average (Per Cent) Call Money Volume (Rs Cr) Call Rates Repo Rates – Outside the RBI CBLO Rates April 2007 Graph A: Trends in WeightedGraph B: Spot Quotations forthe “priority sector” targets should not beAverages of Call Rates, Repo Rates,the US Dollar in the Domestic
a surprise.
CBLO Rates and Call MoneyInter-Bank Market Borrowing – April 2007
50.0
Rupees per US dollarr ( t r ) i i ) (Daily Working Days Apr 2007) Monthly Averages (Jan 2001 to Mar 2007)
Forex Markets
48.0
After the gyrations in the money and
46.0
government securities market in March, the month of April saw return of liquidity manifesting itself through an easing of
44.0
call rates, improved secondary market turnover and higher reverse repo bids, so much so that the effects of the unexpected tightening monetary measures announced on March 30 in the form of a hike in the
42.0
40.0
repo rate by 25 basis points and CRR hike
by 50 basis points in two steps of 25 basis revitalisation of the cooperative structure crore to corporates under the directed points each on April 14 and 28 had only will take decades, if at all it is achieved. credit arrangement. When such leeway is a marginal effect on the market sentiments.
Therefore, in such a rural credit structure officially provided to the banks to escape Yet, the market participants remained catering to the needs of farm and non-farm the rigours of financing truly informal cautious and apprehensive of the RBI’s enterprises alike, the public sector banks sectors, their preference for lending to likely further actions due to looming inhave to take a lead, expand their branch large farmers and corporates just to fulfil flationary concerns and the perception that network even as they co-opt cooperatives
and other local agencies to supplement and Table 2: Weighted Averages of Daily Call/Notice Rates in Per Cent Per Annum:Simple Statistical Characteristics
support their banking business, appoint qualified staff for farm and non-farm Month/Week Simple Standard Coefficient Simple Standard Coefficient Mean* Deviation of Variation Mean* Deviation of Variation
lendings, and undertake to expand their
(Percentages)$ (Percentages)$
credit base amongst the informal sectors.
Call Money Notice Money**
Simultaneously, it is necessary for the apex
March 2007institutions, namely, the Reserve Bank of All five weeks 12.02 13.00 108.16 8.92 9.44 105.81 India and the National Bank for Agriculture 30 (RF)* 23.21 19.06 82.14 19.03 19.70 103.49
23 23.29 16.90 72.57 9.62 6.34 65.84
and Rural Development (NABARD) to
16 (RF)* 5.61 0.54 9.67 6.04 1.79 29.64 reorient their thinking and perspectives 9 5.61 0.33 5.83 5.75 0.49 8.57
and ensure the fulfilment of credit norms 2 (RF)* 6.12 0.07 1.08 5.96 0.11 1.79 April 2007
for agriculture and non-farm informal sector
All four weeks 8.67 2.96 34.16 7.14 2.58 36.17enterprises. Such a sincere commitment 27 (RF)* 9.48 2.02 21.34 8.85 2.31 26.15 does not exist in the existing policy frame-20 10.79 2.88 26.70 7.65 2.21 28.93
13 (RF)* 5.61 1.40 25.01 4.80 1.86 38.82
work for, to cite one example, the new
6 $ 9.61 2.98 31.01 8.04 1.30 16.18
guidelines issued by the RBI on April 30
** Separate reportings began on March 15, 2005.
on “priority sector” advances has included,
* Including data for reporting Fridays (RF). $$ Thursday data. $ Based on original unrounded figures. inter alia, agricultural credit of up to Rs 1 Source:RBI.
Table 1: Money Market Operations (RBI’s Daily Data)
Average April 2007 Average March 2007 Items for Four for Five Weeks 27 (RF) 20 13 (RF) 6 $ Weeks 30 (RF) 23 16 (RF) 9 2 (RF)
No of working days 20 6 56 3 28 5 5 6 66 Call Money Weighted average of call rates:
per cent (weekly range) per annum 3.27-15.01 8.05-13.34 7.36-15.01 3.27-7.01 6.95-12.83 5.27-55.59 9.94-55.59 8.20-52.00 5.27-6.71 5.30-6.23 6.05-6.22 Daily averages (Rupees crore) (13.34) (4.99) (55.59) (6.71) (6.05) Total call market borrowings 13812 12213 14576 14896 13572 19807 12706 8860 10616 10325 8954
(466) (15186) (8999) (1417) (454) Notice Money Weighted average of notice money rates:
per cent (weekly range) per annum 1.50-10.00 6.50-10.00 5.50-9.80 1.50-6.89 7.12-8.96 4.86-52.10 10.71-52.10 7.94-15.62 5.00-9.68 4.86-6.23 5.86-6.10 Daily averages (Rupees crore) (12.58) (5.04) (52.10) (9.68) (6.10) Total notice market borrowings 2790 2259 3592 675 6747 4722 1455 3411 2705 2556 2095
(13248) (3878) (5135) (14957) (12442) Turnover in term money market 243 155 287 272 289 505 1066 246 462 419 381 (borrowings) $$ (117) (105) (2753) (468) (653)
* Data for reporting Fridays are given within brackets and they are also included in the weekly range/daily averages. $$ No of reporting/traded days is fewer than given above. $ Thursday data.
Economic and Political Weekly May 19, 2007 the easy liquidity condition was transitory as market liquidity hinged on movements in capital inflows and cash balances of the government. Liquidity improved during the month due to increased government spending, coupon payments and redemptions, and high year-end deposit growth accompanied by decelerating credit expansion. The RBI continued to mop up liquidity through its modified MSS arrangement except for one week following dated securities and state loan auctions. In the second week of the month, as the liquidity situation improved significantly, the call rates dipped to a low of 3 per cent, thus easing within a fortnight from a peak of 75 per cent and implying huge volatility in short-term rates. But following the two 25 basis points hikes in CRR and MSS absorptions, the call rates again firmed up and the RBI has had to inject liquidity through repo bids from April 16 onwards; the banks also began to use normal liquidity from RBI. Ahead of the annual credit policy statement on April 24, the market sentiments were cautious, but with all rates
Table 3: Comparison of Call, Overnight CBLO and Repo Rates
| Week-Ending | Weighted Average Rates (in Per Cent) | Daily Average Volumes (Rs Crore) | ||||
|---|---|---|---|---|---|---|
| Call | Overnight CBLO | Repo | Call | Overnight CBLO | Repo |
being held steady, the market turned buoyant. However, following the higher-thanexpected yield being set at the last dated securities auction of the month, the market again turned cautious. In the foreign exchange market, the RBI allowed a massive appreciation of the rupee and the rupee rate breached the Rs 41-mark per US dollar raising concerns about export competitiveness; the rupee appreciated against almost all currencies but more so in the case of the four major currencies. In the credit policy, the RBI ushered in a number of structural changes with a view to improving liquidity in the market as well as achieving inclusive credit delivery.
Call Money Market
2-Mar-07 6.10 5.85 6.02 12975 20146 10391 9-Mar-07 5.50 5.01 5.12 12881 21123 10374 Volatility in the call money market fell 16-Mar-07 6.27 5.21 5.40 13321 19752 11585 from the peak levels touched in March with 23-Mar-07 24.59 10.22 11.73 12271 14199 5575
the coefficient of variation declining from
30-Mar-07 24.03 11.10 12.37 14161 13916 4838
108 per cent to 34 per cent (Table 2); yet
5-Apr-07 9.60 7.31 7.69 20318 21646 7311
it is to be noted that volatility has re-emerged
13-Apr-07 5.38 3.59 4.49 15570 19662 9603 20-Apr-07 10.78 7.83 7.65 18168 16721 5343 as an issue in the overnight money market. 27-Apr-07 9.23 6.50 7.01 14472 19106 6165 With the increased government spend-
Source:The Clearing Corporation of India (CCIL). ing, the weighted averages of call rates
Table 4: Details of Central Government Market Borrowing
(Amount in Rs Crore)
Date of Nomenclature Type of Notified Competitive Bids Competitive Bids Indicative YTM at Cut-off Devolvement on Auction of Loan Auction Amount Received Accepted Price (in Per Cent) Primary Dealers Number Amount Number Amount (Rs Crore)
4-Apr-07 7.55 per cent 2010 MSS 6000 201 14415 77 6000 8.24 per cent (Rs 98.12) NA 18-Apr-07 7.55 per cent 2010 MSS 3000 153 13225 23 2997 8.17 per cent (Rs 98.35) NA 27-Apr-07 8.07 per cent 2017 Normal 6000 330 12926 243 5990 8.16 per cent (Rs 99.40) NA 12-Apr-07 7.38 per cent 2015 Normal 6000 274 11277 181 5991 8.16 per cent (Rs 95.31) NA 12-Apr-07 8.33 per cent 2036 Normal 4000 261 10642 81 3992 8.58 per cent (Rs 97.37) NA
Source:RBI Press Releases.
Table 5: Auctions of 91-Day Treasury Bills
(Amount in Rupees Crore)
Date of Notified Bids Tendered Bids Accepted Subscription Cut-off Cut-off Amount Outstanding Auction Amount Devolved Price Yield on the Date of Issue No Face Value No Face Value on PDs (Rupees) Rate
(Amount) (Amount) (Amount) (Per Cent) Total With RBI Outside RBI
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
2006 Mar 29 500.00 45 2730.15 4 500.00 0.00 98.50 6.11 16318.08 0.00 16318.08
(1) (250.00) (1) (250.00) [98.68] [5.35]
2007 Apr 4 2000.00 109 8612.05 13 2000.00 0.00 98.06 7.94 91428.57 0.00 91428.57
(1) (100.00) (1) (100.00) [98.21] [7.31]
Figures in parentheses in cols 3 to 6 represent numbers and amounts of non-competitive bids which are not included in the total.Figures in the square brackets under cols 8 and 9 represent weighted average price and respective yield.
Economic and Political Weekly May 19, 2007 eased substantially from 55.6 per cent on March 30 to 12.8 per cent on April 3 and further to 3.3 per cent on April 12, despite outflows for MSS and dated security auctions. On the first reporting Friday, April 13, the overnight rate ruled at 5 per cent. Following the 25 basis points hike in CRR, the rate began firming up and touched a peak of 15 per cent on April 17 but eased thereafter to 7.7 per cent on April
25. Ahead of the second leg of the CRR hike and on the second reporting Friday, the rate jumped to 13.3 per cent on April 27, but eased to 8.9 per cent on April 28 and rose again to 9.1 per cent on April 30 (Table 1) (Graph A). Among the three money market segments, the market repo and CBLO rates were lower than the call money rates (Table 3).
For the financial year 2006-07, CBLO became a predominant segment of the call money market and accounted for 70 per cent of the total volume. Mutual funds and insurance companies were the major lenders in the CBLO market, with nationalised banks, primary dealers and non-financial companies being the major borrowers. In the market repo segment, mutual funds and foreign banks were the major providers of funds, while foreign banks, private sector banks and primary dealers were the major borrowers.
Forex Market
After the massive appreciation of the rupee against the US dollar by Rs 2.30 over the month, wherein the rupee touched a nine-year peak at Rs 41.07, the rupee further appreciated to Rs 40.87 on May 16. This has been brought about by some inflows of foreign currency assets, but more significantly, by the RBI’s decision to allow the rupee to appreciate. This has induced the union minister for commerce and industry, Kamal Nath, to express concern over the appreciation from the exporters’ perspective. The inflow of foreign currency assets continued to surge by $ 4,953 million over inflows of $ 4,842 million in March and $ 14,144 million in February. With inflation remaining sticky at a high level, the expectations of the RBI non-intervening in the market gathered momentum as the RBI used the exchange rate as an instrument to combat surging inflation rate; nevertheless, the market participants remained apprehensive of the RBI’s stance. Further, with the two phases of a CRR hike during the month, the pressure on domestic liquidity has induced further expectations of the rupee gaining continued to appreciate from Rs 42.88 on against the dollar. Some weakness was April 9 to Rs 42.30 on April 16 and then displayed towards the end of the month breached the Rs 42-mark and ruled at Rs due to month-end demand for dollars 41.73 on April 17. On April 25, the rupee and also due to enhancement of the MSS crossed yet another such mark of Rs 41 limit, which implied that the instrument to and ruled at Rs 40.97 on April 25 but it absorb more liquidity was available for could not be sustained at these high levels the RBI. as the month-end demand for dollars in-
The month began with the rupee-dollar creased and the rupee dipped to Rs 41.29 exchange rate appreciating from Rs 43.59 on April 30 (Graph B). on March 30 to Rs 43.13 on April 2 and The nominal effective exchange rate further to Rs 42.90 on the next day, but as (NEER) for the rupee (six-currency demand for dollars increased, it dipped to trade-based weights) appreciated by 6.1 Rs 43.15 on April 5. Thereafter, the rupee per cent from the low of August 2006 and
Table 6: Auctions of 182-Day Treasury Bills
(Amount in Rupees Crore)
Date of Notified Bids Tendered Bids Accepted Subscription Cut-off Cut-off Amount Auction Amount Devolved Price Yield Outstanding No Face Value No Face Value on PDs (Rupees) Rate on the Date (Amount) (Amount) (Amount) (Per Cent) of Issue
2006 Apr 5 500.00 37 2832.51 6 500.00 0.00 97.03 6.14 8771.37
[97.04] [6.10] Apr 19 500.00 35 2130.00 7 500.00 0.00 97.28 5.61 7771.37
[97.30] [5.55]
2007 Apr 4 1500.00 88 7005.00 5 1500.00 0.00 96.17 7.99 18175.69
(0) (0.00) (0) (0.00) [96.18] [7.97] Apr 18 1500.00 65 3085.00 21 1500.00 0.00 96.28 7.75 19079.85
(2) (524.16) (2) (524.16) [96.32] [7.66]
Figures in the square brackets represent weighted average price and the respective yield. Figures in bracketsrepresent numbers and amounts of non-competitive bids which are not included in the total.
Table 7: Auctions of 364-Day Treasury Bills
(Amount in Rupees Crore)
Date of Notified Bids Tendered Bids Accepted Subscription Cut-off Cut-off Amount Auction Amount Devolved Price Yield Outstanding No Face Value No Face Value on PDs (Rupees) Rate on the Date (Amount) (Amount) (Amount) (Per Cent) of Issue
2006 Mar 29 1000.00 41 3996.00 11 1000.00 0.00 93.98 6.41 43017
(2) (300.00) (2) (300.00) [94.56] [5.75]
2007 Apr 11 2000.00 111 8010.00 9 2000.00 0.00 92.87 7.70 54942
(1) (130.00) (1) (130.00) [92.90] [7.66] Apr 25 2000.00 81 4625.00 44 2000.00 0.00 92.83 7.74 55942
(1) (300.00) (1) (300.00) [92.87] [7.70]
Figures in the square brackets represent weighted average price and the respective yield. Figures in brackets represent numbers and amounts of non-competitive bids which are not included in the total.
Table 8: Profile of Major Commercial Bond Issues during April 2007
Sr Issuing Company/Rating Nature of Coupon in Per Cent Per Annum Amount in No Instrument and Tenor Rs Crore
| 1 | FIs/Banks Oriental Bank of Commerce AAA by Icra & Care | Lower Tier II Bonds | 9.95 per cent for 10 years | 500 (150) | |
|---|---|---|---|---|---|
| 2 | IDFC Ltd | AAA | Bonds | 10.35 per cent for 15 months | 150 |
| 3 | by Fitch & Icra HDFC Ltd AAA | Bonds | 10.75 per cent for 18 months | 500 (350) | |
| by Crisil & Icra | |||||
| 4 | Bank of Maharashtra not available | Upper Tier II Bonds | 10.25 per cent for 15 years with a step-up of 50 basis points if call is | 150 | |
| not excercised at the end of 10 years. | |||||
| Total | 1300 |
Total for April-06 (a year ago): Rs 600 crore. Total for March-07 (a month ago): Rs 3,835 crore.
Note: The amount shown in brackets above denotes the greenshoe option of the issue. Source:Various media sources.
Economic and Political Weekly May 19, 2007
Graph C: Annualised Forward Premia in Graph D: Yield Curves for Datedusing the multiple price method. For thePercentage for the US Dollar in theSecurities – Weighted Averages for
eight-year paper, the cut-off yield was set
Domestic Inter-Bank Market and WeightedWeeks of April 2007
at 8.16 per cent and for the 29-year paper,
Averages of Call Rates for April 2007
17.0
it was at 8.58 per cent against 8.40 per cent
set in previous month (Table 4).
|
|
|
|
| 9.5 |
|
||
| 7.5 |
|
12.0 | |
| 5.5 |
|
|
|
| 3.5 |
|
|
7.0 |
| 1.5 |
|
||
|
|
|
In the second instance, the government
Yield (per cent per annum)
2nd Week 3rd Week 4th Week1st Week 
---i ll t i t i 1-month 3-month 6-month Weighted Averages of Call Rates (Right Axis) re-issued 8.07 per cent 2017 for a notified
amount of Rs 6,000 crore also through a
price-based auction using the multiple price
method. The cut-off yield was set at 8.16
per cent, much above the ruling secondary
market yield.
The weighted average yield of the dated securities issued in 2006-07 increased to 7.89 per cent from 7.34 per cent in
2005-06 and the weighted average maturity
Per cent per annum
2.0
Working Days Years to Maturity
remained steady at 14.72 years as against
April 13, 2007 and over the same period, the rupee began appreciating rapidly along 16.90 years. The weighted average interest the REER has appreciated by 8 per cent. with the pressure on domestic liquidity,
Table 10: Repo Transactions in
Moreover, the rupee has appreciated against thepremiabegan rising and touched a peak Government Paper@ (Other thanmost of the currencies including the south-of 6.92 per cent on April 27 and eased to with the RBI) – April 2007 east Asian currencies and the Chinese yuan. 6.15 per cent on April 30 (Graph C), as
Repo Period Amount Range of InterestIncidentally, the Chinese revision of its the importers began hedging their posi-in Number (Rupees (Per Cent reserve ratio had a marginal effect on the tions in anticipation of rupee depreciation of Days Crore) Per Annum) market. which would be triggered with easing of 1 108429.58 0.25-87.00 (6.33)The turnover in the inter-bank segment domestic inflation rate and the sharp rupee 2 2047.24 0.25-87.00 (6.39)
3 24192.51 3.00-8.85 (8.43)
of the foreign exchange market increased appreciation against major currencies would
4 11095.43 2.00-8.50 (5.61)from $ 405 billion in March 2006 to $ 533 prompt RBI to intervene in the market. 5 170.00 5.00-7.25 (5.73)
billion in March 2007 and that in the
6 255.00 4.50-7.25 (5.97) 7 165.00 5.50-5.55 (5.20)
merchant segment from $ 141 billion to
III 8 100.00 6.00 (6.00)
$ 192 billion. The ratio of inter-bank to 10 100.00 7.20 (7.20)
Primary Market
merchant turnover at 2.8 during 2006-07 15 5.00 7.75 (7.75)
17 100.00 7.25 (7.25)
was almost the same as in 2005-06.
Dated Securities 41 10.00 8.75 (8.75) Though the spot rupee continued to 48 12.00 8.75 (8.75) 90 271.00 8.50-9.00 (8.51)
appreciate, the forward premia across As per the scheduled calendar of issu
91 25.00 8.85 (8.85)
maturity rose but more at the short-end as ances, the government mobilised Rs 16,000 All Issues
compared with the long-end. The six-month crore in two instances. In the first, on April 12, 1-91 146977.76 0.25-87.00 (6.33) [1-96] [240899.43] [2.00-98.20] [7.11]
annualised forward premia eased from the government reissued 7.38 per cent 2015
5.94 per cent on April 3 to 4.99 per cent and 8.33 per cent 2036 for notified amounts @ Cover all types of securities. Figures in round brackets are weighted average
on April11 as domestic liquidity displayed of Rs 6,000 crore and Rs 4,000 crore,
interest rate; in square bracket, the figure representssigns of improvement. But, thereafter as respectively, through price-based auctions the previous month’s turnover/interest rate.
Table 9: Operations of RBI’s Liquidity Adjustment Facility**
(Amount in Rupees Crore)
| Range of | Repo (Injection)* | Reverse Repo (Absorption)* | Net Injection | Net | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| For the Week | Repo/RR | Bids Received | Bids Accepted | Bids Received | Bids Accepted | (+)/ | Outstanding | |||||
| (Feb 2007- | Period | Number | Amount | Number | Amount | Number | Amount | Number | Amount | Daily Averages | Absorption (-) | Amount |
| Mar 2007) | Days | of Bids | of Liquidity | at the | ||||||||
| Accepted | Week End@ | |||||||||||
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | (9) | (10) | (11) | (12) | (13) |
| 29 Jan - 02 Feb 07 | 2-3 | 80 | 29980 | 80 | 29980 | 21 | 4225 | 21 | 4225 | 1408 | 25755 | -7450 |
| 26 Feb - 02 Mar 07 | 1-3 | - | - | - | - | 207 | 118810 | 207 | 118810 | 23762 | -118810 | 22420 |
| 05 Mar - 09 Mar 07 | 1-3 | - | - | - | - | 197 | 125250 | 197 | 14991 | 2998.2 | -14991 | 3000 |
| 12 Mar - 16 Mar 07 | 1-4 | 38 | 19725 | 38 | 19725 | 135 | 131795 | 135 | 12170 | 2434 | 7555 | -19535 |
| 20 Mar - 23 Mar 07 | 1-3 | 244 | 160070 | 244 160070 | 3 | 320 | 3 | 320 | 80 | 159750 | -42185 | |
| 26 Mar - 30 Mar 07 | 1-4 | 184 | 112670 | 184 112670 | 20 | 5060 | 20 | 2845 | 711.25 | 109825 | -28885 | |
| 31 Mar - 05 Apr 07 09 Apr - 13 Apr 07 | 1-4 1-3 | 74 2 | 37465 760 | 74 2 | 37465 760 | 21 158 | 6990 162570 | 21 158 | 5681 14999 | 1420.25 2999.8 | 31784 -14239 | -1455 3000 |
| 13 Apr - 20 Apr 07 | 1-3 | 205 | 83165 | 205 | 83165 | 10 | 525 | 10 | 525 | 105 | 82640 | -16085 |
| 23 Apr - 27 Apr 07 | 1-3 | 119 | 47600 | 119 | 47600 | 31 | 6430 | 31 | 4229 | 845.8 | 43371 | -9996 |
Notes: # with effect from March 05, 2007, daily reverse repo absorptions under LAF is limited to Rs 3,000 crore each day comprising Rs 2,000 crore in the first and Rs 1,000 crore in the second LAF.
* with effect from March 31,2007 the Repo Rate is 7.75 per cent and Reverse Repo Rate 6.00 per cent. ** Includes Second LAF Auctions under Repo and Reverse Repo. @ Net of Repo and Reverse Repo Outstandings.
Economic and Political Weekly May 19, 2007
rate of state government market loans for sale of 10-year loans for an aggregate uniform cut-off yield of 8.30 per cent; increased to 8.10 per cent during 2006-07 amount of Rs 1,837 crore through a yield-Interestingly, Rajasthan offered a lower from 7.63 per cent during the previous year. based auction using multiple price method. rate of 8.25 per cent in the previous month
Five state governments tapped the market All the stocks were oversubscribed at a for the same tenure.
Appendix Table: Secondary Market Operations in Government Papers: NDS and NDS-OM Deals
(Amount in Rupees Crore)
| Descriptions | Week-ending April 2007: Yield to Maturity on Actual Trading | Total for the Month | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 27 | 20 | 13 | 6 | of April 2007 | ||||||||||||
| AMT | YTM | CY | AMT | YTM | CY | AMT | YTM | CY | AMT | YTM | CY | AMT | YTM | CY | ||
| 1 Treasury BillsA 91-Day Bills B 182-Day Bills C 364-Day Bills 2 GOI Dated Securities | 970.70 180.25 638.55 | 7.27 7.40 7.44 | 445.58 464.07 191.2 | 7.29 7.48 7.49 | 2350.33 366.29 1628.45 | 7.07 7.35 6.89 | 1016.71 274.00 47.8 | 7.59 7.75 7.55 | 4783.32 1284.61 2506.00 | 7.24 7.49 7.09 | ||||||
| A Regular (Per Cent: Year)11.50 , 2007 | 30.00 | 7.84 | 11.33 | - | - | - | - | - | - | - | - | - | 30.00 | 7.84 | 11.33 | |
| 11.90 , 2007 | - | - | - | 451.00 | 7.36 | 11.85 | 55.00 | 7.21 | 11.83 | 345.00 | 7.86 | 11.84 | 851.00 | 7.56 | 11.84 | |
| 11.40 , 2008 12.00 , 2008 | -35.00 | -7.91 | -11.55 | -105.00 | -7.90 | -11.54 | 100.00 110.00 | 8.01 7.85 | 10.92 11.53 | -0.08 | -7.37 | -11.46 | 100.00 250.08 | 8.01 7.88 | 10.92 11.53 | |
| 6.65 , 2009 | 1430.00 | 8.02 | 6.82 | 1760.00 | 8.06 | 6.82 | 3375.00 | 8.01 | 6.82 | 1561.56 | 8.13 | 6.83 | 8126.56 | 8.05 | 6.82 | |
| 6.96 , 2009 OMC SB 7.07 , 2009 OMC SB | 10.00 200.00 | 8.54 8.60 | 7.16 7.26 | 35.00 - | 8.52 - | 7.16 - | 50.00 1227.60 | 8.52 8.49 | 7.16 7.25 | -190.00 | -8.42 | -7.24 | 95.00 1617.60 | 8.52 8.50 | 7.16 7.25 | |
| 7.33 , 2009 OIL MKT BONDS | 25.00 | 8.55 | 7.49 | 50.00 | 8.53 | 7.49 | 75.00 | 8.52 | 7.48 | - | - | - | 150.00 | 8.53 | 7.48 | |
| 11.99 , 2009 6.20 , 2010 UTI SPL BONDS | -- | -- | -- | -- | -- | -- | 5.00 5.00 | 8.05 8.55 | 11.20 6.58 | -- | -- | -- | 5.00 5.00 | 8.05 8.55 | 11.20 6.58 | |
| 7.55 , 2010 | 905.00 | 8.02 | 7.65 | 980.00 | 8.11 | 7.67 | 2271.38 | 8.04 | 7.65 | 1525.96 | 8.16 | 7.68 | 5682.34 | 8.08 | 7.66 | |
| 11.30 , 2010 11.50 , 2010 | -- | -- | -- | -- | -- | -- | 60.00 245.00 | 8.18 8.11 | 10.39 10.52 | -- | -- | -- | 60.00 245.00 | 8.18 8.11 | 10.39 10.52 | |
| 12.25 , 2010 | 30.00 | 8.15 | 11.01 | 5.00 | 8.17 | 11.01 | - | - | - | - | - | - | 35.00 | 8.15 | 11.01 | |
| 12.29 , 2010 9.39 , 2011 | 30.00 598.50 | 8.12 8.09 | 11.16 8.99 | 25.00 1327.10 | 8.15 8.17 | 11.17 9.01 | -1709.20 | -8.08 | -8.98 | -1167.40 | -8.22 | -9.02 | 55.00 4802.20 | 8.13 8.14 | 11.16 9.00 | |
| 12.00 , 2011 | - | - | - | - | - | - | - | - | - | 0.02 | 8.00 | 10.43 | 0.02 | 8.00 | 10.43 | |
| 12.32 , 2011 6.85 , 2012 | 0.01 - | 10.55 - | 11.69 - | -15.00 | -8.14 | -7.22 | -- | -- | -- | -- | -- | -- | 0.01 15.00 | 10.55 8.14 | 11.69 7.22 | |
| 7.40 , 2012 | 287.00 | 8.08 | 7.61 | 245.50 | 8.06 | 7.60 | 60.00 | 8.03 | 7.60 | 60.07 | 8.13 | 7.63 | 652.57 | 8.07 | 7.61 | |
| 10.25 , 2012 11.03 , 2012 | -0.05 | -9.88 | -10.54 | -- | -- | -- | -- | -- | -- | 0.00 - | 8.53 - | 9.58 - | 0.00 0.05 | 8.53 9.88 | 9.58 10.54 | |
| 7.27 , 2013 | 0.40 | 8.02 | 7.55 | 250.00 | 8.13 | 7.59 | - | - | - | - | - | - | 250.40 | 8.13 | 7.59 | |
| 12.40 , 2013 7.37 , 2014 | 0.41 689.08 | 8.10 8.02 | 10.25 7.63 | 2.90 744.50 | 8.36 8.10 | 10.37 7.67 | -3515.20 | -8.08 | -7.66 | -2491.64 | -8.20 | -7.71 | 3.31 7440.42 | 8.32 8.12 | 10.36 7.67 | |
| 10.00 , 2014 | - | - | - | - | - | - | - | - | - | 0.00 | 8.55 | 9.29 | 0.00 | 8.55 | 9.29 | |
| 10.50 , 2014 11.83 , 2014 | 0.02 130.48 | 8.08 8.20 | 9.26 9.85 | -7.50 | -8.20 | -9.85 | -0.03 | -8.10 | -9.79 | 0.03 - | 8.55 - | 9.49 - | 0.05 138.01 | 8.35 8.20 | 9.39 9.85 | |
| 7.38 , 2015 7.59 , 2015 OMC SB | 5966.59 120.00 | 8.05 8.54 | 7.69 8.02 | 5686.42 - | 8.14 - | 7.73 - | 1505.81 - | 8.14 - | 7.73 - | 0.29 30.00 | 8.08 8.48 | 7.71 7.99 | 13159.11 150.00 | 8.10 8.53 | 7.71 8.02 | |
| 7.61 , 2015 OIL MKT BONDS | 30.00 | 8.60 | 8.06 | - | - | - | 10.00 | 8.60 | 8.06 | 315.00 | 8.64 | 8.08 | 355.00 | 8.64 | 8.08 | |
| 9.85 , 2015 11.43 , 2015 | 0.72 0.04 | 8.19 8.15 | 8.95 9.57 | -- | -- | -- | 1.00 - | 8.30 - | 9.01 - | -0.04 | -8.55 | -9.78 | 1.72 0.08 | 8.26 8.35 | 8.99 9.67 | |
| 11.50 , 2015 | - | - | - | 0.27 | 8.27 | 9.68 | - | - | - | 0.27 | 8.55 | 9.83 | 0.54 | 8.41 | 9.76 | |
| 7.59 , 2016 8.15 , 2016 FCI SB | 660.00 - | 8.03 - | 7.81 - | 270.00 - | 8.11 - | 7.85 - | 1055.13 - | 8.13 - | 7.86 - | 285.00 2.00 | 8.19 8.42 | 7.89 8.34 | 2270.13 2.00 | 8.11 8.42 | 7.85 8.34 | |
| 12.30 , 2016 | 0.03 | 10.37 | 11.06 | - | - | - | - | - | - | - | - | - | 0.03 | 10.37 | 11.06 | |
| 6.65 , 2017 7.46 , 2017 | 25.00 0.45 | 8.02 8.07 | 6.81 7.79 | -- | -- | -- | 5.00 5.00 | 7.98 8.28 | 6.81 7.91 | -- | -- | -- | 30.00 5.45 | 8.01 8.26 | 6.81 7.90 | |
| 8.07 , 2017 | 3962.67 | 8.05 | 8.06 | 2435.48 | 8.07 | 8.07 | 5023.18 | 8.07 | 8.07 | 2359.62 | 8.17 | 8.13 | 13780.95 | 8.08 | 8.08 | |
| 5.69 , 2018 6.25 , 2018 | -0.12 | -8.06 | -7.17 | 1.50 0.75 | 8.27 7.49 | 7.01 6.87 | -1.01 | -8.54 | -7.43 | 4.41 5.98 | 8.29 8.32 | 7.03 7.31 | 5.91 7.86 | 8.29 8.26 | 7.02 7.28 | |
| 5.64 , 2019 | - | - | - | 5.00 | 8.21 | 6.97 | - | - | - | 3.00 | 8.39 | 7.07 | 8.00 | 8.28 | 7.01 | |
| 6.05 , 2019 6.35 , 2020 | 10.00 - | 8.20 - | 7.23 - | 14.46 0.45 | 8.28 8.43 | 7.28 7.56 | 0.26 0.14 | 8.12 8.19 | 7.19 7.42 | 0.34 - | 8.24 - | 7.26 - | 25.06 0.59 | 8.24 8.37 | 7.26 7.53 | |
| 10.70 , 2020 | - | - | - | - | - | - | 38.55 | 8.27 | 8.98 | - | - | - | 38.55 | 8.27 | 8.98 | |
| 7.94 , 2021 8.13 , 2021 OMC SB | 210.00 870.38 | 8.15 8.56 | 8.08 8.43 | 27.91 233.02 | 8.19 8.64 | 8.11 8.48 | 115.00 - | 8.19 - | 8.11 - | 154.40 - | 8.29 - | 8.18 - | 507.31 1103.40 | 8.21 8.57 | 8.12 8.44 | |
| 10.25 , 2021 | - | - | - | - | - | - | - | - | - | 0.10 | 8.03 | 8.65 | 0.10 | 8.03 | 8.65 | |
| 5.87 , 2022 8.15 , 2022 FCI SB | -- | -- | -- | -0.30 | -8.37 | -8.31 | -2.20 | -8.34 | -8.29 | 2.00 5.83 | 8.21 8.32 | 7.36 8.27 | 2.00 8.33 | 8.21 8.32 | 7.36 8.27 | |
| 8.35 , 2022 | 10.00 | 8.25 | 8.28 | - | - | - | - | - | - | - | - | - | 10.00 | 8.25 | 8.28 | |
| 6.17 , 2023 6.30 , 2023 | 1.50 - | 8.12 - | 7.46 - | 2.20 2.00 | 8.43 8.34 | 7.69 7.67 | 2.08 - | 8.48 - | 7.73 - | 2.84 - | 8.22 - | 7.54 - | 8.62 2.00 | 8.32 8.34 | 7.61 7.67 | |
| 8.20 , 2024 OMC SB | 665.00 | 8.63 | 8.52 | - | - | - | - | - | - | - | - | - | 665.00 | 8.63 | 8.52 | |
| 8.40 , 2026 OMC SB 10.18 , 2026 | 839.51 0.10 | 8.68 8.29 | 8.62 8.62 | 542.21 - | 8.74 - | 8.67 - | -- | -- | -- | -0.13 | -8.75 | -8.99 | 1381.72 0.23 | 8.70 8.54 | 8.64 8.82 | |
| 8.24 , 2027 | - | - | - | 50.00 | 8.36 | 8.34 | - | - | - | - | - | - | 50.00 | 8.36 | 8.34 | |
| 6.01 , 2028 7.95 , 2032 | 14.86 1.25 | 8.31 8.39 | 7.77 8.34 | 5.70 - | 8.35 - | 7.80 - | 7.50 - | 8.56 - | 7.97 - | 12.70 - | 8.51 - | 7.93 - | 40.75 1.25 | 8.42 8.39 | 7.86 8.34 | |
| 7.50 , 2034 | 10.00 | 8.40 | 8.30 | 2.00 | 8.30 | 8.21 | 108.00 | 8.51 | 8.40 | 16.51 | 8.48 | 8.37 | 136.51 | 8.50 | 8.38 | |
| 7.40 , 2035 8.33 , 2036 | 0.08 1408.02 | 8.25 8.39 | 8.15 8.38 | 0.50 1551.03 | 8.48 8.51 | 8.36 8.50 | 15.00 1388.69 | 8.56 8.50 | 8.44 8.49 | 12.84 391.00 | 8.35 8.51 | 8.25 8.49 | 28.42 4738.73 | 8.47 8.47 | 8.35 8.46 | |
| Sub-total | 19207.26 | 8.15 | 7.93 | 16834.69 | 8.16 | 8.03 | 22146.96 | 8.12 | 7.86 | 10946.03 | 8.20 | 7.98 | 69134.95 | 8.15 | 7.94 | |
| B RBI’s OMO: Sales | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |
| Purchase | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |
| Sub-total | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |
| (A+B)3 Market Repo 4 State Govt Securities | 19207.26 39090.79 102.40 | 8.15 7.78 | 7.93 9.85 | 16834.69 29449.41 655.44 | 8.16 8.29 | 8.03 9.79 | 22146.96 56397.90 614.93 | 8.12 8.30 | 7.86 8.37 | 10946.03 22039.67 84.28 | 8.20 8.37 | 7.98 69134.95 146977.77 8.30 1457.05 | 8.15 8.26 | 7.94 9.11 | ||
| Grand total (1 to 4) | 60189.95 | 48040.39 | 83504.86 | 34408.49 | 226143.70 |
(-) means no trading YTM = Yield to maturity in percentage per annum CY = Current yield in per cent per annum SGL = (RBI’s) Subsidiary General Ledger OMO = Open Market Operations OMC SB = Oil marketing companies special bonds NDS = Negotiated Dealing System OM = Order Matching Segment.Notes: (1) Yields are weighted yields, weighted by the amounts of each transaction. (2) Current yield has not been worked out for treasury bills. (3) For Floating Rate Bonds (FRB’s) current yields
are based on the latest half-year yield determined in the auction.
Economic and Political Weekly May 19, 2007 1807
As per the modified MSS arrangements, the RBI mopped up an aggregate of Rs 9,000 crore through issuance of 7.55 per cent 2010. The yield on 7.55 per cent 2010 eased from 8.24 per cent on April 4 to 8.17 per cent on April 18.
The ceiling for the outstandings under the MSS has been revised from Rs 80,000 crore set in March to Rs 95,000 crore with a threshold of Rs 85,000 crore as the MSS outstandings crossed the earlier threshold of Rs 70,000 crore and stood at Rs 75,521 crore as on April 24.
Treasury Bills
With the improved liquidity situation, the treasury bill (TB) yields eased from the levels witnessed in March across maturities, but surprisingly the TB’s yield curve turned perverse and somewhat downward sloping. The yield on the 91-day TB fell from 7.98 per cent on March 28 to 7.94 on April 4 and then dipped to
7.35 per cent on April 11, but edged up to 7.48 per cent on April 18 to revert back to 7.35 per cent on April 25. Similarly, the yield on 182-day TB eased from 8.2 per cent on March 21 to 7.99 per cent on April 4 and to 7.75 per cent on April 18. Though the yield on 364-day TB declined from 7.98 per cent on March 28 to 7.70 per cent on April 11, it rose again to 7.75 per cent on April 25. During 2006-07, the primary yields on treasury bills increased in the range of 117-132 basis points (Tables 5 to 7).
Corporate Bonds Market
In the first month of the new financial year, typically the corporate bond market remains subdued as borrowers refrain from tapping the market, as traditionally it is considered as part of the slack season. As a result, the mobilisations from the market dipped to Rs 1,300 crore from Rs 3,835 crore in March, but it was still better than that mobilised in April 2006 at Rs 600 crore. During the month, only four issuers, of which two were financial institutions and two were banks, tapped the market, with HDFC and Oriental Bank of Commerce both mobilising the highest amount of Rs 500 crore each (Table 8).
Bank of Maharashtra offered 10.25 per cent for its upper tier-II bonds for 15 years with a step-up of 50 basis points if the call is not exercised at the end of 10 years as against a coupon offered at 9.10 per cent for the same bond in October 2006.
Sebi, in its endeavour to develop an exchange-traded market for corporate bonds, proceeded to the second stage after having set up and maintained corporate bond reporting platforms on BSE and NSE to capture all information related to trading in corporate bonds. In the second stage to be effective from July 1, 2007, BSE and NSE have been permitted to have in place corporate bond trading platforms to enable efficient price discovery and reliable clearing and settlement arrangements. To begin with, the trade-matching platform shall be order driven with essential features of the OTC market. Eventually, a system of anonymous order matching shall be established. Moreover, the minimum trading value for corporate bonds for all entities has been reduced to Rs 1 lakh from the existing Rs 10 lakh.
IV Secondary Market
Following the decline in centre’s balances with the RBI, the weekly average secondary market turnover for gilt-edged securities improved significantly as against the weekly range of Rs 8,367 crore to Rs 13,460 crore in March. It rose from Rs 8,077 crore in week ending April 6 to Rs 23,801 crore in next week reflecting the buoyant liquidity scenario but it dipped to Rs 15,855 crore in the week ending April 20 following the first phase of CRR hike and then rose to Rs 16,964 crore on April 27.
Given the improvement in liquidity and higher range-bound inflation rate, the medium and long-term rates eased significantly, while the short-term rates firmed up giving rise to a somewhat flat yield curve. The spread between 8.07 per cent 2017 and 12 per cent 2008 narrowed from 80 basis points in the week ending April 6 to 13 basis points in week ending April
27.Similarly, the spread between the abovementioned one-year security and 8.33 per cent 2036 narrowed from 114 basis points to 47 basis points. However, the spread between the above mentioned 10-year security and 29-year security ruled in a range of 34-45 basis points. Thus, the yield curve remained somewhat flat (Graph D) (see also Appendix Table).
The RBI permitted transfer of /trading in the power bonds maturing on October 1, 2011 and April 1, 2012, issued by various states to central public sector undertakings (CPSUs) in terms of the tripartite agreement among 27 state governments, ministry of power, government of India and the RBI under One-Time Settlement Scheme for dues of state electricity boards. Earlier, six bonds maturing on October 1, 2008, April 1, 2009, October 1, 2009, April 1, 2010, October 1, 2010 and April 1, 2011 were made tradable.
RBI Reverse Repos, OMOs and MSS
The RBI modulated liquidity through the active use of both the LAF windows of repo and reverse repo. Though the liquidity conditions eased in early April due to reduction in the centre’s surpluses, the size of reverse repo bids being tendered began surging and touched a peak of Rs 51,615 crore – a size seen after a gap of nine months, but the momentum was not sustained and the RBI had to inject liquidity in the second-half of the month following the hike in CRR. Yet, the RBI support in April was of the order of Rs 1,66,175 crore the order of against Rs 2,92,465 crore in March (Table 9). In the week ending April 5, RBI injected liquidity worth Rs 37,465 crore while it absorbed Rs 5,681 crore from the bids tendered worth Rs 6,990 crore. In the next week, RBI’s support dipped to Rs 760 crore while reverse repo bids worth Rs 1,62,570 crore were tendered, of which RBI accepted Rs 14,999 crore. In the week ending April 20, reverse repo bids tendered and accepted dipped to Rs 525 crore while RBI support increased to Rs 83,165 crore and in the last week of the month, RBI supported the market by injecting Rs 47,600 crore while absorbing Rs 4,229 crore of Rs 6,430 crore worth bids tendered.
Unlike the secondary market for giltedged securities, the turnover in repo outside RBI declined from Rs 2,40,899 crore in March to Rs 1,46,978 crore in April (Table 10) but at a lower average interest rate of 6.33 per cent as against 7.11 per cent in March.
Commercial Bonds
Following the deceleration in the primary market mobilisations for corporate debt securities, the daily average secondary market turnover for corporate debt declined from Rs 78 crore in March to Rs 38 crore in April. Among the various instruments traded, the trading declined sharply for debentures from Rs 1,266 crore in March to Rs 298 crore.
lff[The note has been prepared by Piyusha Hukeriand the accompanying statistical tables have beencollated by V P Prasanth.]
Economic and Political Weekly May 19, 2007
