RBI secures full underwriting for Rs 28,000 crore G-Sec sale; sets ACU fees

The Reserve Bank of India has guaranteed the full subscription for the government's Rs 28,000 crore bond sale through an Additional Competitive Underwriting (ACU) auction. This measure ensures the entire notified amount will be purchased, even if investor demand falls short during Friday's main auction.

Two long-dated securities were underwritten: a Rs 17,000 crore issue of 6.68% Government Security maturing in 2040 and an Rs 11,000 crore issue of 7.43% Government Security maturing in 2076. Primary Dealers (PDs) were initially required to meet a Minimum Underwriting Commitment (MUC). Beyond this, RBI invited competitive bids for ACU, where PDs bid on the commission they would accept to guarantee additional amounts.

The RBI accepted ACU bids totaling Rs 8,495 crore for the 2040 bond and Rs 5,498 crore for the 2076 bond, fully covering both issues. The ACU commission cut-off was set at 0.39 paise per Rs 100 for the 2040 bond and 0.68 paise per Rs 100 for the 2076 bond. These commissions amount to approximately Rs 3.3 crore for the 2040 paper and Rs 3.7 crore for the 2076 paper, with the higher rate for the longer-dated security reflecting increased duration risk.

Underwriting auctions are a standard risk-management practice, ensuring the government's borrowing program proceeds smoothly. The low commission rates suggest PDs perceive limited risk of devolvement and are comfortable holding the inventory, even for long-term securities.