MUMBAI, January 28: The Reserve Bank of India (RBI) has mobilised Rs 704.52 crore through the first ever five-year Capital Indexed bonds 2002 within a month.The central bank announced closure of sale of the on-tap bond at the end of banking hours on Wednesday.``Considering the present market situation, the response is neither good nor bad,'' said market analysts. The collected amount was in line with expectations, they added. The RBI could have kept the bond open for some more time if the market situation was better, said the analysts.
According to them, at present no institutional or individual investor will subscribe to the bonds.
``I do not think RBI will come out with similar instruments now,'' a prominent public sector bank's treasury chief said. The RBI may be innovative while launching its new products in the next fiscal, he said.
A good response from the market was expected for the bond as inflation- protected bonds were a good adjunct to other asset classes, which were not directlyinflation protected.
An inflation-protected bond promises to be an important development in the financial market. It not only represents a funding innovation for the government and a potentially desirable asset class for investors, but it will also facilitate the development of the market for the public sector and corporate issuers considering an inflation-linked bond.
The centre's capital-indexed bonds, which opened for subscription on December 29, would be tradable and eligible for repo facility.
The bonds' interest rates are payable semi-annually. The inflation adjustment for repayment of principal will be on the basis of the monthly average of the wholesale price index as calculated by the RBI.
Being a new product, it was priced marginally cheaper than conventional bonds to develop market interest in the instruments.
The Reserve Bank has chosen the Canadian style inflation-protected bond form for the on-tap issue. The bonds are issued with an initial principal of 100 and a real yield determinedthrough auction.Over time, the principal adjusts itself according to the changes in the price index from time the bond was issued.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
