The recent Open Market Operation (OMO) purchase auction conducted by RBI under its latest liquidity infusion measures received an overwhelming response from banks. The auction, which aimed to buy five Government Securities (G-Secs) with a notified amount of ₹20,000 crore, saw banks placing offers six times higher than the specified amount.
In total, the RBI accepted offers amounting to ₹20,020 crore (face value) from banks. The auction witnessed the highest number of offers (181) for the 7.18 per cent GS 2037, totaling ₹40,736 crore, and the lowest number of offers (33) for another security, amounting to ₹12,492 crore.
V Rama Chandra Reddy, Head-Treasury at Karur Vysya Bank, pointed out that the high participation in the OMO purchase auction was driven by banks looking to capitalize on the recent rally in bond yields, which have hit a three-year low. The regulatory exemption allowing banks to sell securities from their Held-to-Maturity portfolio without being subject to the 5 per cent annual cap on sales further motivated their participation.
Banks predominantly offered older 10-year benchmark securities in the auction, such as the 7.18 per cent GS 2033 and 7.10 per cent GS 2034, at a discount to market prices. However, the new 10-year benchmark (6.79 per cent 2034) held in trading portfolios was not offered at a discount.
The RBI had announced various liquidity-enhancing measures, including the OMO purchase auctions of G-Secs totaling ₹60,000 crore, to infuse liquidity into the banking system. The measures, including a $5 billion dollar-rupee buy/sell swap auction and a 56-day Variable Rate Repo (VRR) auction, could inject approximately ₹1.50 lakh crore into the banking system in a phased manner.
Overall, the OMO purchase auction under RBI’s latest liquidity infusion measures received significant interest from banks, reflecting their eagerness to leverage the current market conditions for profit.
