RBI to auction Rs 29,000 crore in G-secs on March 6 — what investors should know

The Reserve Bank of India (RBI) on Friday released the outcome of an underwriting auction held ahead of the government’s bond sale scheduled for March 6. The exercise covered government securities worth Rs 29,000 crore, which the Government of India plans to raise from the market.

The underwriting process involved two existing government bonds — the 6.68 per cent Government Security 2040 and the 6.90 per cent Government Security 2065. These securities will be re-issued as part of the government’s borrowing plan.

Underwriting auctions are conducted before the main bond sale to ensure there is enough institutional support for the issuance. If investor demand turns out to be weaker during the actual auction, Primary Dealers step in to absorb the securities they have committed to.

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Two securities to be re-issued

According to the RBI release, the 6.68 per cent GS 2040 carries a notified amount of Rs 16,000 crore, while the 6.90 per cent GS 2065 bond has a size of Rs 13,000 crore.

Together, the two securities make up the Rs 29,000 crore borrowing planned through this auction.

Both bonds are re-issues of previously issued securities rather than entirely new instruments. The Re-issuance of the existing bonds enables to increase their outstanding size in the market, which basically improves liquidity and trading activity.

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How the underwriting commitments were split

For the 6.68 per cent GS 2040, the Minimum Underwriting Commitment (MUC) was set at Rs 8,001 crore. The remaining Rs 7,999 crore was accepted through Additional Competitive Underwriting (ACU) bids.

In the case of the 6.90 per cent GS 2065, the MUC stood at Rs 6,510 crore, while Rs 6,490 crore was covered under ACU bids.

This ensured that the entire Rs 29,000 crore issue size across both securities was fully underwritten.

Commission earned by primary dealers

Primary Dealers earn a small commission for taking on the underwriting risk.

For the 6.68 per cent GS 2040, the ACU cut-off commission was 1.07 paise per Rs 100.

For the 6.90 per cent GS 2065, the commission was slightly higher at 1.19 paise per Rs 100.

While the commission may appear small, underwriting government bonds is an important role for Primary Dealers because it ensures the stability and smooth functioning of the bond market.

Why this process is important

Underwriting auctions form a key part of India’s government securities market structure. They act as a safeguard for the government’s borrowing programme by ensuring that a portion of the bond issue already has committed buyers.

Primary Dealers — which include large banks and financial institutions — are required to participate in these auctions under a framework introduced by the RBI in 2007.

With the underwriting stage now completed, the government will move ahead with the main auction of these securities through the RBI’s electronic e-Kuber platform.

The proceeds from the bond sale will contribute to financing the government’s fiscal requirements under its FY2025–26 borrowing programme.