State government bonds that are issued under the UDAY scheme, intended to revitalise ailing power distribution companies, are likely to be placed with investors directly through private placement, according to a Reserve Bank of India (RBI) spokesperson.
Under the UDAY programme, states have agreed to convert 75% of the debt on the books of their respective power distribution companies into state government bonds. The government has proposed that these bonds should be priced at not more than 75 basis points above the prevailing 10-year benchmark government security. One basis point is a hundredth of a percentage point. With the stock of state government bonds set to surge following this conversion, bond markets have turned nervous. This is one reason why yields on state government bonds have risen in recent months. The RBI, however, clarified to the markets on Friday that these bonds would be placed privately with investors and will not come into the market. “...the UDAY bonds, if and when issued as non-SLR state development bonds, will not hit the market but will be through private placement,” said the RBI spokesperson in response to a media query. “The RBI will also consider regulatory relaxations, including classification of these bonds as held to maturity,” the spokesperson added. Allowing these bonds to be in the held-to-maturity (HTM) category will be a relief for banks as they will not have to mark them down to market value at periodic intervals. This would prevent a hit to the treasury portfolio of banks. While the RBI’s clarification will help soothe bond markets to some extent, it may not take away the pressure entirely as markets are also concerned about the deterioration in state finances and the increase in state borrowings. (For more on state finances, read *Mint* data team’s analysis here <http://www.livemint.com/Opinion/F8lda56i5LxnllH7JIAlTN/State-finance-ministers-must-watch-out-for-2017.html> ) The yield on state government bonds, known as state development loans or SDLs have increased by 30 basis points within a week. Twenty-one states sold debt worth Rs.21,450 crore at a 23 February auction, the most money ever raised in a single sale, according to India Ratings and Research. The cut-off yield at this auction ranged between 8.48% and 8.88%, higher than 8.25-8.55% range seen in previous auctions. Borrowings by state governments will aggregate around Rs.3 trillion in fiscal 2016, a 35% rise from the previous fiscal year. Amid rising bond yields across tenures and an impending increase in liquidity deficit, the RBI also announced on Thursday that it will infuse up to Rs.12,000 crore of liquidity by buying government bonds under open market operations (OMO) on 3 March. Bond yields fell by 5 basis points on Friday in response to the RBI’s clarification on UDAY bonds as well the OMO move of Thursday. At 10:20am, the benchmark 10-year yield was trading at 7.83% compared to Thursday’s close of 7.88%. -- Kindly email stock reports at STOCKRESEARCHER@googlegroups.com For sharing knowledge -- NIFTYVIEWS.COM NOW A FREE OPEN SOURCE WEBSITE. http://www.niftyviews.com/ Disclaimer :- "The opinions expressed by the members on this board are based on their individual experience and perceptions and to share information with other members with the best of intentions to help fellow members in investment decisions as equity investment is a risky venture.The administrator of www.Niftyviews.com just provide a platform for the authors to express their opinion and take no guarantee for the genuineness of the same."ANY member of this forum doesnt prepare or publish any research report; or ii. provide research report; or iii. make 'buy/sell/hold' recommendation; or iv. give price target; --- You received this message because you are subscribed to the Google Groups "Niftyviews.com" group. To unsubscribe from this group and stop receiving emails from it, send an email to stockresearcher+unsubscr...@googlegroups.com. For more options, visit https://groups.google.com/d/optout.
