In the secondary market, the four-year paper is currently offering a yield of 11.70 per cent while the three-year new government loan is offering a coupon of 11.55 per cent.

The issue was fully subscribed as the market witnessed a healthy appetite for short-dated government paper. "Even though the coupon fixed by the RBI is a little lower than the secondary market yield on a similar maturity paper, banks lapped it up," said a money market dealer.

The central bank received 196 bids worth Rs 7,711.60 crore and accepted 14 bids worth Rs 2,500 crore. Partial allotment by the central bank was to the tune of 66.92 per cent.

A market dealer said, "From the amount of bids received by the central bank, itis very clear that there is ample liquidity in the system." The RBI mopped up only Rs 100 crore on Wednesday through three-day five per cent fixed-rate repos as it received only one application.

With the auction of the Rs 2,500 crore four-year paper, the centre has completed Rs 50,398.72 crore out of a gross borrowing programme of Rs 79,000 crore in the current fiscal.

In the previous auction held on July 23, about 58.5 per cent of the six-year government paper -- a part of the double bond auction -- devolved on the RBI despite a higher coupon of 11.55 per cent. However, the 10-year paper sailed through smoothly. The coupon of the 10-year paper was pegged at 12.22 per cent -- three basis points lower than the 12-year paper.

Last month, the RBI had signalled a steep hike in the short- and medium-term interest rates by hiking the coupon on three-year and five-year government stocks at the triple bond auction which was much above the secondary market yield.