MUMBAI : The Reserve Bank of India said on Friday that it will hold the first auction to purchase state government bonds for a total amount of ₹10,000 crore through open market operations (OMO) on October 22, 2020.
“It has been decided to carry out an auction for the purchase of SDL within the framework of Open Market Operations (OMO) for a total amount of ₹Rs 10,000 crore on Oct 22, 2020, considering this is SDL’s first OMO purchase. Depending on the market response, the auction size may improve in subsequent auctions, “RBI said in its statement.
The central bank also added that it reserves the right to decide on the purchase amount of individual securities, accept offers for less than the total amount, buy marginally higher / lower than the total amount, accept or reject offers.
In its recent policy, the RBI had announced its decision to OMO these state development loans to ensure liquidity and support the state government loan program.
On Thursday, the Finance Ministry said the central government will borrow ₹Rs 1.1 million lakh under the special window to cover the goods and services tax (GST) offsetting gap The loaned amount will be rolled over to the states as “consecutive loans in lieu of the GST offset payment.”
State governments are expected to borrow as much as ₹2 trillion in Q3FY21, 33% more than the real amount of ₹1.5 trillion last year. This could result in an increase in SLD issues in the fourth quarter as they seek funds amid a sharp contraction in their own tax collections and a deficit in GST compensation payment of Rs2.35 trillion.
State governments have borrowed almost ₹Rs 3.76 crore lakh via SDL between April and the first week of October, 53.6% more than during the same period last year, according to ICRA Ratings.
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