Highlights:
- RBI announced GSAP 2.0 of ₹ 1.2 lakh crore
- The Government Securities Acquisition Program will be conducted in the 2nd quarter of the financial year
- The remaining ₹ 40,000 crore from GSAP 1.0 will also be conducted on the 27th of June
The Governor of the Reserve Bank of India (RBI), Shaktikanta Das, on Friday, announced the second tranche of the bond-buying program of ₹1.2 lakh crore, along with the expected lines. The Government Securities Acquisition Program (GSAP) 2.0, which is higher than the first tranche, will be conducted in the second quarter of the financial year.
Governor Das also said that the remainder of ₹ 40,000 crore of GSAP 1.0 will be conducted on the 27th of June. Of this ₹ 40,000 crore, ₹ 10,000 crore would constitute the purchase of the State Development Loans (SDLs).
The decision to announce the second tranche of GSAP has come after a three-day meeting of the RBI’s monetary policy committee.
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Das said, “The auctions under G-SAP 1.0 have evoked keen interest from market participants, with bid cover ratios of 4.1 and 3.5, respectively, in the two auctions undertaken so far.
“The timing of the second auction was aimed towards replenishing the drainage of liquidity due to the restoration of the cash reserve ratio (CRR) to its pre-pandemic level of 4 per cent of net demand and time liabilities (NDTL), effective May 22, 2021”.
On the 7th of April, the monetary policy was announced during which Governor Das also announced that the apex bank will conduct open market purchases of government securities of ₹ 1 lakh crore under the GSAP 1.0 in the first quarter of the Financial Year 2021-22.
The first auction under GSAP 1.0 conducted on the 15th April, 2021 for a notified amount of ₹ 25,000 crore and had elicited an enthusiastic response.
Later the Reserve Bank of India announced that it would conduct the second auction of ₹ 35,000 on the 20th of May.
Upasna Bharadwaj, Senior Economist at Kotak Mahindra Bank said, “The higher asset purchases under the GSAP program in 2QFY22 is also in line with our expectations. However, given that SDL purchases are also included in GSAP 2.0, it may be marginally negative for the Gec bond yields given that a higher purchase was expected in order to offset the supply concerns emanating from the higher Gsec issuance expected to meet the GST compensation cess shortfall to the States.
“Needless to say the pressure on states’ finances is increasing and hence the support from RBI is likely to ease the SDL yields marginally”.
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Over the last 2 months, the liquidity surplus has reduced in the system by more than ₹ 2 lakh crore and the government is expected to borrow an additional ₹ 1.58 lakh crore to compensate states for the Goods and Service Tax (GST) shortfall through back to back loans like the year before.
Additionally, the top bank has also restored the Cash Reserve Ratio (CRR) to 4%, after it was cut last year as part of the liquidity measures.
The CRR is the amount of cash that the banks are, on mandatory, required to maintain with the RBI at zero interest.
RBI’s Governor, Das, also added that apart from GSAP, the top bank will continue with the liquidity operations under Liquidity Adjustment Facility (LAF), longer-term repo/ reverse repo auctions, forex operations and open market operations, including special Open Market Operations (OMOs).
So far, during the current year, the RBI has undertaken regular OMOs and also injected additional liquidity to the tune of ₹ 36,545 crore (up to May 31) in addition to the ₹ 60,000 crore under GSAP 1.0.
