The aim is to give depth to the treasury bills segment and mop up surplus funds through treasury bills auctions. According to market sources, in order to create demand for the 364-day T-bills, the only option before the central bank is to offer higher yield and allow more participation by increasing the notified amount.

The market is expecting an yield of around 9 per cent for the 364-day T-bills to be auctioned on Wednesday. "There is no interest in the market for the 364-day T-bills as the central bank is offering a low yield of 8 per cent whereas the one-year paper in the secondary market maturing in 1999 is currentlyoffering an yield of 9.91 per cent," said an official from Securities Trading Corporation of India.

"If the central bank does not increase the yield for the 364-day T-bills to be auctioned tomorrow, it is likely that the paper might devolve on the RBI again," said a dealer from a nationalised bank.

Last week, after hiking the notified amount for the two short-term T-bills (14-day and 91-day), the central bank also aligned the yields of both the T-bills with the secondary market yields. The Reserve Bank increased the yield of the 14-day T-bills to 6.53 per cent and the 91-day T-bills to 7.77 per cent. The yield of the 364-day T-bills, however, remained unchanged at 8 per cent since the beginning of the current fiscal year.

The demand for hiking the notified amount and yields of the 14-day, 91-day and 364-day T-bills was put forth by the six primary dealers a few weeks ago. Primary dealers (PDs) maintain that this will be beneficial for the PDs as they will be allowed to underwrite Rs 100 crore as against50 crore earlier. The PDs are allowed to underwrite 50 per cent of the notified amount of the T-bills auctions.