Govt borrowing hits 58.7% of FY16 target in first half

The government issued dated securities worth Rs1,71,000 crore during the second quarter of the current financial year (2015-16), taking the gross borrowings during the first half of FY16 to Rs3,51,000 crore or 58.5 per cent of budget estimates for the full financial year, slightly higher compared to 58.7 per cent in H1 of the previous financial year.

With repayment of Rs136,928 crore in H1 of FY16, net market borrowings during H1 of FY16 were at Rs214,071 crore (46.9 per cent of budget estimates), which is also lower than 56.0 per cent of budget estimates in the previous year.

The market borrowings calendar for second half of FY16 have been adjusted down by Rs15,000 crore to take into account expected government borrowings through Sovereign Gold Bond and Gold Monetisation Scheme.

Auctions during Q2 of FY16 were held in twelve tranches, broadly in accordance with the pre-announced calendar.

Efforts to elongate maturity were continued during the quarter. The weighted average maturity (WAM) of dated securities issued during Q2 of FY16 was at 16.46 years. The weighted average yield (cut-off) of issuances during Q2 of FY16 was at 7.96 per cent as against 7.92 per cent in Q1 of FY16.

Liquidity conditions in the economy remained comfortable and mostly in surplus mode during the quarter. The cash position of the government during Q2 of FY15 was comfortable and remained mostly in surplus mode barring a few occasions. The issuance amount under Treasury bills were also broadly as per calendar.

The public debt (excluding liabilities under the 'Public Account') of the central government provisionally increased by 2.1 per cent in Q2 of FY 16 on Q-o-Q basis.

Internal debt constituted 92.1 per cent of public debt as of end-September 2015, while marketable securities accounted for 84.5 per cent of public debt. About 27.2 per cent of outstanding stock has a residual maturity of up to 5 years, which implies that over the next five years, on an average, around 5.4 per cent of outstanding stock needs to be rolled over every year. Thus, the rollover risk in the debt portfolio continues to be low. The implementation of budgeted buy-back/ switches in coming months is expected to reduce roll over risk further, RBI said.

Meanwhile yields on government securities decreased across the curve during the quarter compared to previous quarter. G-Sec market opened Q2 FY16 on steady but cautious note and broadly showed positive sentiment in expectations of rate cut from RBI to support growth fundamentals as inflation numbers moderated.

The market saw sharp correction in mid-Aug 2015 on account of devaluation of Chinese Yuan and concerns over slowdown in Chinese economy, which led to massive sell off across asset classes globally.

The announcement of Medium Term Framework for staggered increase of FPI limits in debt securities along with announcement of setting FPI limit in rupee term and separate FPI limits for SDLs enthused the market towards end of quarter.

The 10-year benchmark paper touched two-year low of 7.48 per cent. The 10-year bond yield closed at 7.61 per cent on 30 September 2015 against 7.87 per cent on 30 June 2015.

Trading volumes in Q2 FY16, on an outright basis, decreased by 4.11 per cent over the previous quarter, with G-securities solely contributing to this decrease in trading activity.  The annualised outright turnover ratio for central government dated securities during Q2 of FY16 also decreased to 4.2 against 4.6 in the previous quarter.