India's RBI schedules Rs 1 lakh crore bond buys
Change
India's RBI announced open market operations (OMO) — auctions where the central bank buys or sells government securities to manage liquidity — totaling Rs 1 lakh crore in two Rs 50,000 crore auctions on March 9 and March 13 to offset about Rs 2 lakh crore of expected advance tax outflows.
Why it matters
Banks now face a binding choice ahead of mid-March: sell government securities into the RBI's OMO auctions and reduce their liquidity coverage ratio (LCR) — liquidity coverage ratio (LCR) — or hold high-quality liquid assets and source cash elsewhere to meet tax-driven outflows. Treasury and asset-liability management teams must set participation and pricing strategies around the auction clears.
Implications
- • Banks' treasury and asset-liability management teams must decide whether to place bids in the Rs 50,000 crore OMO auctions on March 9 and March 13 — failing to secure cash via the auctions or alternative funding will leave them exposed to advance tax outflows.
- • Primary dealers and government securities trading desks must set bid levels for the two auctions immediately — unattractive bids risk leaving dealers unable to offload inventory without further straining their institutions' LCRs.
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