The Reserve Bank of India will sell 1 trillion rupees of government bonds over the next two weeks, a sharp escalation in its effort to drain a banking system awash with cash after a record dollar inflow. The sales start on September 16 and run through September 28, marking the central bank's most aggressive open-market operation since the surplus ballooned to 10.25 trillion rupees, or roughly 3.8 percent of deposits, this month.
The schedule and the surplus
The first tranche on September 17 totals 500 billion rupees in bonds maturing between fiscal 2029 and fiscal 2032. Two follow-up auctions of 250 billion rupees each are slated for September 21 and September 28. The liquidity glut traces back to the RBI's special foreign-exchange mobilisation scheme, which pulled in $127 billion, far more than officials had anticipated, and lifted central bank reserves to an all-time high. Governor Sanjay Malhotra said earlier in the day that the central bank has tools beyond variable-rate reverse repos, including open-market operations and FX swaps, and that "nothing is off the table."
The tools that came up short
This week the RBI tested two of those tools: a longer-tenor VRRR and dollar-rupee sell-buy swaps. Both drew limited interest from banks, leaving the surplus largely intact. The tepid response forced the central bank to move quickly to outright bond sales, a step it had previously signaled it would treat as a last resort.
The market's concern
Traders warn that large-scale debt sales risk pushing up government borrowing costs at a moment when the 10-year benchmark yield has already climbed 26 basis points in four weeks, driven by surging oil prices and rising US Treasury yields. VRC Reddy, treasury head at Karur Vysya Bank, argued the RBI should have persisted with sell-buy swaps and paired them with an incremental cash-reserve-ratio hike on deposits gathered under the FX scheme. "We felt open market sale of bonds should have been used as the last option," he said.
The policy debate
A person familiar with New Delhi's thinking said the government could invoke a market stabilisation scheme if conditions deteriorate, but prefers a CRR increase as the primary lever because it tightens liquidity without directly pressuring bond yields. The official requested anonymity because they are not authorised to speak publicly. For now, the bond calendar is set, and the market will gauge whether 1 trillion rupees of supply is enough to absorb a surplus that has already proven resistant to softer measures.