MUMBAI, July 23: The Reserve Bank of India (RBI) has announced the auction of Rs 5,000 crore dated securities with a four-year maturity on July 28.

With this, the centre will complete 84 per cent of its budgeted borrowing for financial year 1997-98 in a record short time of four months.

The auction is being made at a time when there is excess liquidity in the system. The liquidity overhang is the fallout of the 4 percentage (400 basis points) points cut in the cash reserve ratio which took place in the last fiscal. "The impact of the CRR cut is being felt now. We were expecting the central bank to come out with a ten-year paper auction," a senior banker said.

The issue is likely to devolve on the central bank and the primarly dealers as banks are not interested in buying short- and medium-term securities.

"The banks are moving up the yield curve and buying long-term securities as these are proving to be an attractive buy," a dealer in a private bank said.

Treasury chiefs said that the market was expecting a ten-year paper at around 12 per cent. "Banks are not interested in anything below 12 per cent," a treasury head said.

Dealers said that the cut-off yield of the four-year paper is likely to be pegged at 11 per cent. The cut-off yield of the six-year paper auctioned last week was fixed at 11.83 per cent. The 13.85 per cent and the 11.75 per cent central government security maturing in 2001 were trading at 10.80 per cent and 11 per cent levels, respectively.

The RBI will determine the maximum rate of yield on the basis of the bids received. The last time the government raised such a large amount was when it privatly placed Rs 5000 crore through a ten-year paper. It recently auctioned Rs 4,685 crore through a seven-year paper at 12.59 per cent.

Bankers said that the auction will put a slight pressure on the overnight call rates which are likely to tighten as money on account of repos, 14 day treasury bills and 91 day treasury bills will flow out. "The quantum of outflow through the repos and the treasury bill auctions will be lesser than the inflow. But a Rs 5000 crore borrowing will leave an impact on the call money.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.