India debt investors call for higher short-term borrowing to absorb excess cash, sources say

MUMBAI: Indian bond market participants have suggested that the government increase supply in the shorter duration, as most lenders are holding surplus rupee liquidity and looking for investment avenues, three treasury sources aware of the matter said on Friday.

All the officials requested anonymity as they are not authorised to speak to the media.

New Delhi has started consultations with market participants for the fiscal second-half borrowing calendar, which will continue through next week.

The government aims to borrow a record 16.09 trillion rupees ($170.33 billion) for the current fiscal, including 7.89 trillion rupees from October to March, about 49% of the annual target.

The suggestion comes after India’s banking system liquidity surplus jumped above 10 trillion rupees for the first time ever, helped by bigger-than-expected dollar inflows.

India to begin borrowing talks this week as traders seek more ultra-long bonds

“With such high rupee liquidity from nearly all the major banks and few lending avenues, it makes sense for the government to increase short-end supply and ease pressure on the 10-year,” one of the officials said.

Supply of shorter duration maturities was at 23.5% of the total borrowing for April-September, up from 16.6% a year earlier.

At the same time, ultra-long bonds with maturities of 30 to 50 years accounted for 24.9% of April-September borrowing, down from 35% a year earlier.

The borrowing calendar will be announced towards the end of the month, before the central bank’s monetary policy decision on October 7.