Govt to buy back securities worth Rs 82,523cr

“This is a voluntary and transparent buyback programme where the premium will be paid in cash and for the balance amount, the government will issue new securities with the tenure varying between 5-20 years at fixed interest rate,” he said.

“We have initially identified illiquid 24 securities… and banks and FIs can suggest more G-Secs for buyback programme,” he added. The buyback and issuance of new securities would help banking entities to build portfolio of liquid instruments, make provision for non-performing assets, he said, adding this would also reduce the centre’s interest burden.

The transaction would be structured in such a way that the fiscal deficit on account of premium paid by the centre under buyback does not exceed the amount to be fixed prior to he auction, he added.

Narayan said the government would announce a total amount it would set aside to pay as premium to bidders and would close the price-based auction when the set amount was reached. “The cut-off on the offers would be determined on the basis of the use-up of the discount premium funds,” he said.

He said banks could use the cash funds to increase provisioning against bad loans. “To the extent that the banks use this cash (premium) for provisioning against their NPAs (non-performing assets), it is free of tax,” he said.

He said liquidity in the money market would improve after the buyback. “There might be a slight impact on the fiscal deficit, depending on the actual premium paid to buy back these bonds.”

Analysts say ever since the announcement of the scheme on Budget day, there were whispers that the Centre will not take kindly if banks decided not to participate in the exercise. The issue here is straightforward: while the Centre may have its concerns over reducing the pressure on the financial front, for banks it is good to continue holding to these high-coupon bonds.

Or in simple words, why should banks give up on interest income? The point is any decision to participate in the buy-back, has to be preceded by that trade-off question. While Narayan did not venture to hazard a guess on the extent of participation by banks, he made it a point to mention that the response from chief executives of banks to the proposal at a meeting earlier in the day indicated that there would be healthy appetite from them.