India’s Central Bank Sits Out T-Bill Auction Amid Cash Squeeze
India’s central bank, the Reserve Bank of India (RBI), did not accept any bids for 91 and 182-day treasury bills during an auction held on Thursday, highlighting a cash squeeze in the nation’s banking system.
In a recent statement, the RBI revealed that it rejected bids for ₹26,000 crore ($3 billion) in sales. However, it did proceed to sell ₹7,000 crore worth of 364-day bills at a yield of 6.5638%. Despite measures taken by the RBI to inject cash into the banking system, liquidity remains in a deep deficit. As of Wednesday, banks had borrowed approximately ₹2 lakh crore from the central bank, according to a Bloomberg Economics index.
Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank, commented, “The government is likely to be sitting on a relatively comfortable cash balance now after tax collections, so the RBI may have decided to take the step to support banking system liquidity.”
In recent weeks, the central bank has added ₹1 lakh crore to the financial system through open market bond purchases over three auctions. Furthermore, it has injected $5 billion equivalent of liquidity via a forex swap and has been conducting variable repo auctions for longer tenor treasury bills.
Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank, noted, “It would appear that the RBI would be providing liquidity through OMOs and longer-term repo operations, while ensuring that less cash drains out through the sales of t-bills.” After Thursday’s t-bill sale results, the five-year bond was trading steady at 6.65%.
In May, the RBI had announced a reduced borrowing schedule for the government through treasury bills. This decision followed shortly after the central bank transferred a sizable dividend to the government, a move that typically enhances liquidity within the banking system over time.