MUMBAI: A State Bank of India report has suggested that the government follow a `dumbbell’ borrowing strategy for the next year through a judicious mix of short and long-term institutional borrowing and retail savings for FY23. This would help the government manage its finances which are likely to get derailed with crude oil moving beyond $120 because of the Ukraine conflict.
According to Soumya Kanti Ghosh, chief economist, SBI group the government has been quick to assuage markets by clarifying that it is unlikely to borrow any more in March. It can also address the market’s apprehensions for FY23 by announcing a roadmap for proposed borrowing which involves leveraging all plausible alternatives within the government borrowing framework.
Ghosh describes this as a dumbbell strategy as it involves borrowing a sizable amount through treasury bills across maturities. T-bills are short term borrowings with a maximum maturity of a year. According to Ghosh, RBI can mop up a considerable additional amount under the T-Bills route in all weekly auctions without disturbing the equilibrium, with a band of Rs 1500-2500 crore higher accretion set per week, as per market appetite and liquidity conditions in sight.
“Secondly, the government may look to give a push to Small Saving Schemes. In particular, it can give a hard push to SSY (Sukanya Samriddhi Yojana), through encouraging fresh registrations in a mission drive mode, allowing one time registrations for all leftover cases up to 12 years,” said Ghosh. He recommends banks roping in Business Correspondent (BC) channel partners since banks have a low share vis-à-vis Post offices.
Thirdly, the RBI can issue papers by matching the profile of redemption of government papers. Ideally, papers up to 7 years in the short-term segment, 10-15 years in the mid-segment and beyond 15 years in the long-term segment could be the ideal mix of meeting the borrowing appetite of market players. “For short term segment, banks, mutual funds and insurance companies are the potential players. Provident funds, pension funds and life insurance companies owing to their long liability profile are the players in the long-term segment,” he said.
Demand for the mid-segment has to be created to keep the pressure off the 10-year segment by doing OMO in the mid-segment. “From the redemption profile of the government till FY43, we estimate that FY29, FY30, FY37 & FY38 have more legroom to absorb redemption,” said Ghosh in the report. The report also recommends that the government comes out with a quarterly borrowing calendar, in place of a half-yearly calendar on the lines of T-bill and SDL calendar will provide the Government with the flexibility to manage borrowing in line with evolving revenues and expenditures.
According to Soumya Kanti Ghosh, chief economist, SBI group the government has been quick to assuage markets by clarifying that it is unlikely to borrow any more in March. It can also address the market’s apprehensions for FY23 by announcing a roadmap for proposed borrowing which involves leveraging all plausible alternatives within the government borrowing framework.
Ghosh describes this as a dumbbell strategy as it involves borrowing a sizable amount through treasury bills across maturities. T-bills are short term borrowings with a maximum maturity of a year. According to Ghosh, RBI can mop up a considerable additional amount under the T-Bills route in all weekly auctions without disturbing the equilibrium, with a band of Rs 1500-2500 crore higher accretion set per week, as per market appetite and liquidity conditions in sight.
“Secondly, the government may look to give a push to Small Saving Schemes. In particular, it can give a hard push to SSY (Sukanya Samriddhi Yojana), through encouraging fresh registrations in a mission drive mode, allowing one time registrations for all leftover cases up to 12 years,” said Ghosh. He recommends banks roping in Business Correspondent (BC) channel partners since banks have a low share vis-à-vis Post offices.
Thirdly, the RBI can issue papers by matching the profile of redemption of government papers. Ideally, papers up to 7 years in the short-term segment, 10-15 years in the mid-segment and beyond 15 years in the long-term segment could be the ideal mix of meeting the borrowing appetite of market players. “For short term segment, banks, mutual funds and insurance companies are the potential players. Provident funds, pension funds and life insurance companies owing to their long liability profile are the players in the long-term segment,” he said.
Demand for the mid-segment has to be created to keep the pressure off the 10-year segment by doing OMO in the mid-segment. “From the redemption profile of the government till FY43, we estimate that FY29, FY30, FY37 & FY38 have more legroom to absorb redemption,” said Ghosh in the report. The report also recommends that the government comes out with a quarterly borrowing calendar, in place of a half-yearly calendar on the lines of T-bill and SDL calendar will provide the Government with the flexibility to manage borrowing in line with evolving revenues and expenditures.
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