Exclusive: India may slash borrowing from market in April amid lockdown - sources

By Swati Bhat and Aftab Ahmed

MUMBAI/NEW DELHI (Reuters) - India may slash or even cancel its planned borrowings from the market for April amid a nationwide lockdown prompted by the coronavirus outbreak, two finance ministry sources told Reuters.

The travel curbs have disrupted routine bond market trading and volumes and prompted primary dealers, who underwrite the bond issuances, to seek finance ministry intervention.

"We are looking at various options. Market borrowing is challenging in the current environment," a senior finance ministry official said.

"So we are considering options of selling these bonds to LIC (Life Insurance Corp of India) or RBI (Reserve Bank of India). We might still look at a small borrowing from the market, but all options are on the table," he said, adding that the government could also use the central bank's ways-and-means facility - an overdraft the RBI offers to the state - to address any immediate cash needs.

The private placement of bonds would ensure the government gets the money it needs for its expenditure while there is no impact on the market.

The official also said the government would likely take a month-by-month view on borrowing for the time being, unlike its normal practice of a six-month borrowing calendar.

If new issuances were pulled it would be the first time in decades that the government had taken such a step in the first month of the new fiscal year, as it depends heavily on such borrowing for paying out maturing bonds.

The government's bond redemption for the month of April stands at 350 billion rupees, while, going by average issuance of 150 billion rupees a week, the government could potentially sell bonds worth 600 billion rupees in April.

Tax collections too are far lower in the first month of India's April-March fiscal year, and most expenditure is financed via borrowings.

'NO APPETITE'

Finance Minister Nirmala Sitharaman had earmarked gross borrowing of 7.8 trillion rupees for FY21 that starts in April, out of the total expenditure of 30.42 trillion rupees.

"Individually primary dealers have told the RBI and the finance ministry that the borrowing in April needs to be cancelled as there is no appetite," one primary dealer, who did not want to be named, told Reuters.

Other primary dealers that Reuters spoke to agreed.

A separate government official had last week told Reuters that it had asked the RBI to directly buy its bonds as the market was not conducive for raising funds.

The finance ministry and RBI did not comment.

The government was likely to announce its borrowing plan by Tuesday at the latest, a finance ministry spokesman said.

Last week, Sitharaman announced a package of 1.7 trillion rupees to help the poor due to the coronavirus outbreak, while the RBI cut its benchmark rates by 75 basis points and announced a host of liquidity measures to boost sentiment.

India has reported 1,071 cases of the coronavirus and 29 deaths from the infection.

With traders working remotely since the lockdown was announced last Tuesday, bond markets have seen volumes falling to less than a 10th of the usual 800-900 billion rupees over the last 10-15 sessions.

"Very difficult to have a view in these markets. I went to the office last week but did not do a single trade," a trader at a state-run bank said. "It is difficult to trade through a remote connection from home. So whatever trading happens is cutting of existing positions."

The current benchmark 10-year bond yield closed at 6.21%, up 7 bps on the day and sharply higher than the low of 5.98% seen after the rate cut by the RBI on Friday.

(Additional reporting by Manoj Kumar in NEW DELHI; Editing by Nick Macfie and Alex Richardson)