Public sector banks and financial institutions gave the thumbs down to the Centre's plan to buyback high-coupon, relatively illiquid government securities through an auction.

That there was only a token response can be gauged by the fact that though the government offered to repurchase 19 securities with a total outstanding amount of Rs 1,00,438 crore (Rs 1,004.38 billion), offers were received only for 14 per cent (Rs 14,434 crore or Rs 144.34 billion) of this amount.

In all, 131 offers were received by the Reserve Bank of India on Saturday, amounting to a total of Rs 14,434 crore (face value).

As these bids were at or above the minimum discount of 7.5 per cent, they have been accepted by the Government. The market value of these securities bought back, amounts to Rs 19,394 crore (Rs 193.94 billion).

The Reserve Bank of India, however, was silent on the total amount of premium actually payable by the government to the banks and FIs.

"If the market value, as mentioned by the RBI, factors in the average discount cut-off of 7.6846 per cent then the premium pay-out for the government works out to Rs 4,960 crore (Rs 49.60 billion). Despite the fact that this is well within the premium pay-out band of Rs 5,000-6,000 crore (Rs 50-60 billion), which was indicated by the government, the Centre's objective of swapping high-coupon, illiquid gilts with low-coupon, liquid gilts has not been met," said a senior banker.

According to bankers, trading screens, however, showed that banks and FIs had put in Rs 8,837 crore (Rs 88.37 billion) worth of bids at or above the minimum cut-off of 7.5 per cent. At the average cut-off of 7.648 per cent, the pay-out works out to Rs 2,141 crore (Rs 21.41 billion).

"Most of the banks and FIs tested the waters by putting in only token bids. The gilts that received the maximum offers were the one's with high premium," the bankers said.

The gilts that received good offers were the 11.50 per cent GS 2009 (14 offers for Rs 3,493 crore or Rs 34.93 billion); 12.40 per cent GS 2013 (14 offers for Rs 1,708 crore or Rs 17.08 billion); 12.32 per cent GS 2011 (nine bids for Rs 1,538 crore or Rs 15.38 billion); and 12.15 per cent GS 2008 (four bids for Rs 1,475 crore or Rs 14.75 billion).

In lieu of the securities repurchased, Government will simultaneously reissue four liquid securities, of the equivalent face value of Rs 14,434 crore, to the Banks/Institutions whose offers were accepted.

The government will re-issue the 6.65 per cent GS 2009 for Rs 2,886.80 crore (Rs 28.868 billion); the 6.72 per cent GS 2014 for Rs 5,773.60 crore (Rs 57.736 billion); the 7.46 per cent GS 2017 for Rs 2,886.80 crore; and the 6.25 per cent GS 2018 for Rs 2,886.80 crore.