The first Open Market Operation (OMO) purchase auction conducted by RBI on Thursday as part of its latest liquidity infusion measures saw a huge response, with banks placing offers for six times the notified amount of ₹20,000 crore.
The RBI sought to buy five Government Securities (G-Secs/ GS) via the OMO purchase auction from Banks. But it accepted offers aggregating Rs ₹20,020 crore (face value).
Out of the five G-Secs, the central bank received maximum offers (181) for the 7.18 per cent GS 2037 aggregating ₹40,736 crore and the least offers (33) aggregating ₹12,492 crore.
The central bank rejected all bids for the 2029 paper, but accepted 21 bids aggregating ₹6,520 crore at a weighted average yield of 6.8601 per cent (weighted average price: ₹102.65).
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V Rama Chandra Reddy, Head-Treasury, Karur Vysya Bank, observed that the participation in the OMO purchase auction was exceptionally high, reflecting banks’ eagerness to crystallize profits following a significant rally in bond yields, which have dropped to a three-year low.
“A key factor driving this participation is the regulatory exemption allowing banks to sell securities from their Held-to-Maturity portfolio in the OMO auction without being subject to the 5 per cent annual cap on HTM sales.
“The pattern of offered securities, Banks heavily offered older 10-year benchmark securities, including 7.18 per cent GS 2033, 7.10 per cent GS2034 and 7.18 per cent GS 2037, as they hold significant quantities in their HTM portfolios. Given the exemption from the 5 per cent cap, these securities were offered at a discount to market prices,” Reddy said.
However, the new 10-year benchmark (6.79 per cent 2034), which is an on-the-run security, is primarily held in trading portfolios. As a result, banks did not offer it at a discount to market prices.
The RBI announced (on January 27, 2025) measures such as a $5 billion dollar-rupee buy/sell swap auction of six months tenor and OMO purchase auctions of G-Secs aggregating ₹60,000 crore to enhance liquidity in the banking system.
The central bank also announced a 56-day Variable Rate Repo (VRR) auction for a notified amount of ₹50,000 crore.
The aforementioned measures could lead to liquidity infusion of about ₹1.50 lakh crore for the banking system in a phased manner, beginning (on January 30 and ending on February 20) with OMO purchase auction.
