Govt to borrow Rs3,60,000-cr in H1 of FY’16, issue 40-year bonds

The government will issue 40-year bonds for the first time as it plans to borrow a total of Rs6,00,000 crore in the coming financial year 2015-16. Of this it will raise 3,60,000 crore  in the first half of the fiscal (April-September 2015-16).

Currently, government bonds have a maximum maturity period of up to 30 years.

The borrowing in the first half of the next fiscal is 60 per cent of the Rs600,000 crore gross borrowing that the government proposes through bonds during the year.

In the first half, most of the borrowing will be through bonds that will mature after 10 years or more.

''We will use a 40-year bond to borrow up to Rs10,000 crore,'' finance secretary Rajiv Mehrishi told reporters after a meeting with Reserve Bank of India officials. The actual amount could be between Rs5,000 crore and Rs8,000 crore. However, dates are yet to be finalised for the launch of this longer-maturity bond.

After deducting the repayments of loans of over Rs1,35,000 crore maturing in the April-September period, the net borrowings of the government during the period will be Rs2,25,000 crore.

Rajat Bhargava, joint secretary in the finance ministry, said that government would borrow an average Rs17,000-18,000 crore every week during the first six months of the fiscal.

The government also, on Monday, announced plans to smoothen the market through framing of new guidelines to reduce the pressure of repayment of loans raised earlier

Bhargava said that such bonds bring stability in the system, besides helping in benchmarking interest rates and easing redemption pressure. These bonds could be very useful for pension funds in their long-term investment strategy.

At the meeting between Reserve Bank of India and finance ministry officials to finalise the borrowing calendar, it was also decided that in the next financial year the government would exchange Rs50,000 crore worth of bonds that are maturing in the next two to three years with bonds of longer tenor.

This will reduce the amount of loan that the government will have to repay during the period.

As per December-end figures, the government will have to repay loans worth Rs2,30,000 crore in 2016-17, Rs2,50,000 crore in 2017-18 and Rs2,40,000 crore in 2018-19.

The government decided to raise debt through securities maturing over a larger time period in order to further bring down the burden of repayment and spread it over a longer period.

Meanwhile, RBI deputy governor R Gandhi, addressing a debt market summit in Mumbai, said the corporate debt market had been hindered by the surge in government borrowing through bonds.