Debt switch mostly with insurers

Debt switch mostly with insurers

India may conduct its Rs 50,000 crore debt switch programme mostly with buy-and-hold insurance companies, a Reserve Bank of India (RBI) official said on Wednesday, potentially helping take pressure off the country's bond markets.

Under a debt switch programme unveiled in the 2013/14 budget, India plans to buy short-dated debt, and in turn sell longer-dated bonds, in an effort to spread out redemptions of debt to later years.

However, investors worry the new supply of longer-dated debt would hit bond prices. Banks would probably be the most affected, since they are the main buyers of government debt.

RBI Deputy Governor H R Khan said the central bank was considering dealing directly with insurance companies, which are traditionally buy-and-hold investors and would not be as much affected by falls in bond prices.

"A large number of long-tenure bonds are held by insurance companies," Khan told analysts in a conference call on Wednesday.

On the conference call, which followed an RBI policy review in which the central bank unexpectedly kept interest rates on hold, Governor Raghuram Rajan added the aim of the debt switch would be to cause little disruption to bond markets.

Comments (+)