H1 borrowings had remained in the 60-65% band during the five years before FY18.
Given the large repayment obligations, the Union government on Friday said it will front-load its FY20 market borrowings by mobilising 62.3% of its budgeted full-year gross borrowing target through bonds in the first half itself, against just 47.5% of the relevant target in the year-ago period.
H1 borrowings had remained in the 60-65% band during the five years before FY18. Gross market borrowing in H1FY20 will be Rs 4.42 lakh crore against Rs 2.88 lakh crore in the year-ago period. Bond market experts said the front-loading of borrowings might not push up bond yields much as the market anticipated it in view of the high repayment obligations.
The 10-year G-Sec rose 0.03% to 7.35% on Friday, before the borrowing calender was unveiled. The government will also introduce new seven-year benchmark government security and may extend 15-19 years gilt maturity bracket to 15-24 years. In the current financial year, the Centre had introduced two new benchmark securities —2 years and 5 years.
For FY20, the Centre had pegged gross market borrowing at a nine-year high of Rs 7.1 lakh crore and net borrowing at Rs 4.73 lakh crore. Gross borrowing for FY19 rose by `36,000 crore from an earlier estimate of Rs 5.35 lakh crore as the Centre decided to fund the income support scheme for farmers and bridge likely shortfalls in tax receipts.
Bond market experts feel the new 7-year paper would reduce pressure on the 10-year G-Sec yields. In September 2018, the yield on 10-year benchmark had gone up about 20% y-o-y to about 8%, partly due to higher extra budgetary resources (EBR) borrowings and the rise in borrowings by state governments.
“Gross borrowings will be higher, if the borrowings classified as EBR are included. Most PSUs that borrow through EBR leverage their strength of being majority government owned public policy entities and the budgetary support they receive from the union government,” Ind-Ra wrote earlier.
Repayment of past loans would be Rs 1.2 lakh crore in H1FY20 and Rs 1.35 lakh crore in the second half. The RBI will also be conduct switching of securities through auction on third Monday of every month, finance secretary SC Garg said, adding there will be 26 issuances of Rs 17,000 crore each in the first half of the next financial year.
The net borrowing will be Rs 3.4 lakh crore in the first half of FY20. The government will expand the bucket of bonds with duration of 15-19 years to 15-26 years and 20 or more years to 25 or more years, indicating its willingness to ease repayment obligations in future. On T-Bills, Garg said: “We will be raising Rs 20,000 crore every week in the first quarter. As we repay Rs 12,000 crore, net inflow through TBills will be about Rs 8,000 crore/week.”