RBI Accepts Nearly ₹25,000 Crore in G-Sec Buyback Auction

The Reserve Bank of India (RBI) on Thursday accepted bids worth ₹24,934.4 crore in its government securities (g-sec) buyback auction, close to the notified amount of ₹25,000 crore. Institutions had offered ₹33,201.4 crore worth of bids in total.

This is the second buyback operation by the RBI this month. Along with the previous week’s auction, it ranks as one of the most successful buybacks since the central bank resumed these operations in May, following a six-year break.

In earlier buybacks, the RBI accepted fewer bids than the total notified amount, likely because both the central bank and the government were dissatisfied with the prices banks were offering. The RBI handles government debt management.

Recent success in these buyback operations is attributed to softer bond yields, allowing traders to make profits without selling bonds to the government at a loss, according to market dealers.

Since January 2024, the yield on the 10-year benchmark government bonds has dropped by 43 basis points. On January 1, the 10-year yield was at 7.19%, but as of Thursday, it had dropped to 6.76%.

In the auction, the RBI accepted ₹6,409 crore in bids for the 7.72% bond maturing in May 2025, ₹8,919.8 crore for the 5.22% bond maturing in June 2025, ₹605 crore for the 8.20% bond maturing in September 2025, ₹8,127.9 crore for the 5.15% bond maturing in November 2025, and ₹872.6 crore for the 7.59% bond maturing in January 2026.

A buyback operation allows the government to use its cash reserves to repay part of its outstanding borrowings through bonds early. This boosts liquidity in the banking system as banks hold large amounts of government bonds. As of October 16, the banking system’s liquidity, measured by the absorption of funds by the RBI, stood at ₹1.89 lakh crore.