Govt raises 10k cr via rarely used tool, Bond St surprised

The government on 10TH Nov. surprised bond dealers and economists alike by raising Rs 10,000 crore from the market through cash management bills (CMBs), a rarely used instrument that it resorts to only when the exchequer faces a short-term liquidity mismatch.
Bond dealers warned that given that the exchequer has a cash shortage, if the government's expenses are not controlled at this stage or divestments don't pick up pace, there could be slippages leading to a higher deficit figure than the budgeted 4.1%. However, economists said there is leeway for the government to control expenditure and generate revenues for the exchequer.
Under the Ways and Means Advance (WMA) facility of the Reserve Bank of India (RBI), the government can borrow up to Rs 20,000 crore till March 2015 to meet such short-term frictional cash shortfall at the repo rate, currently at 8%. If the government borrows anything above that limit, it will have to pay an interest of two percentage points above the repo rate - 10% given the current repo rate. However, if the government mobilizes funds through CMB, it usually pays a lower rate of interest. In Monday's 42-day CMB auction, it paid the rate of 8.25% per annum, savings of 1.75 percentage points for the exchequer.

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Issuance of Government of India Cash Management Bills


The Government of India, in consultation with the Reserve Bank of India, has decided to issue a new short-term instrument, known as Cash Management Bills, to meet the temporary cash flow mismatches of the Government. The Cash Management Bills will be non-standard, discounted instruments issued for maturities less than 91 days.
The Cash Management Bills will have the generic character of Treasury Bills and their sale will be subject to the terms and conditions specified in the General Notification No. F.2 (12)-W&M/97 dated 31st March 1998 issued by Government of India and as amended from time to time.
The Cash Management Bills will have the following features.
a) The tenure, notified amount and date of issue of the proposed Cash Management Bills will depend upon the temporary cash requirement of the Government. However, the tenure of the proposed Bills will be less than 91 days.
b) The proposed Bills will be issued at discount to the face value through auctions, as in the case of the Treasury Bills.
c) The announcement of the auction of the proposed Bills will be made by the Reserve Bank of India through separate Press Release to be issued one day prior to the date of auction.
d) The settlement of the auction will be on T+1 basis.
e) The Non-Competitive Bidding Scheme for Treasury Bills will not be extended to the Cash Management Bills.
f) The proposed Bills will be tradable and qualify for ready forward facility. Investment in the proposed Bills will be reckoned as an eligible investment in Government Securities by banks for SLR purpose under Section 24 of the Banking Regulation Act, 1949.
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NCAER lowers India GDP growth forecast to 5%

“The fundamentals of the economy remain weak with uncertainties prevail. The only redeeming feature is the weakening of inflation and FDI inflows”

The National Council of Applied Economic Research has lowered India’s GDP growth forecast to 5 per cent in the current financial year on weak economical fundamentals and uncertainties in growth prospects.
The economic think-tank in its earlier projection had suggested that the Indian economy was likely to grow at 5.7 per cent in 2014-15.
“NCAER is predicting a slower growth for the economy unlike other forecasts. The fundamentals of the economy remain weak with uncertainties prevail. The only redeeming feature is the weakening of inflation and FDI inflows.
“Whether that will help us revive our growth prospects will depend on a number of factors including revival of the external economy and the extent of damage on agriculture due to deficit rainfall,” it said in a release on Tuesday.
The NCAER said that the overall economy is looking weak with uncertain growth prospects. “The economy is giving mixed signals. On one hand, we had the Sensex reaching record levels partly driven by record foreign institutional investment and FDI.”
However, the business confidence index is showing rise in sentiments on the back of a stable political regime with the new government, it said.
Weakening of prices due to cheaper food and fuel inflation is also positive, but agricultural growth is predicted to be lower than last year as there was deficit rainfall with uneven spatial and temporal patterns.
“The pace of growth shows signs of slowing down in the services sector. Not surprisingly, bank credit to the commercial sector has not picked pace and continues to languish.
“Further, the slowdown in the external economy, except the United States, shows little growth prospects for the external sector even though exports grew in the first quarter,” it said.
Therefore, while inflation has weakened significantly and sentiments have improved, the fundamentals of the economy continue to be weak, said NCAER. 

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