The Finance Ministry is exploring the possibilities of another round of buyback of government securities from banks and financial institutions, as the first auction yielded only 14 per cent of the targeted Rs 1,00,438 crore (Rs 1,004.38 billion).

"We may go for another buyback either later this fiscal or next fiscal. But nothing is finalised yet," a senior finance ministry official told PTI in New Delhi on Friday.

The ministry is assessing the market sentiments after the first online screen-based auction carried out by the Reserve Bank of India to buy back 19 high-cost illiquid securities.

A bond dealer said the G-sec markets were expected to witness a "range-bound" movement in prices, as there was little scope for a steep cut in interest rate by RBI, as it was seen in the last few years.

This provides ample opportunity for the government to mop up more securities from the market.

Although the finance ministry officials had described the buyback of securities worth Rs 14,434 crore (Rs 144.34 billion) in the first round as a "win-win" situation for both banks and the government, the second round of buy-back is being explored considering the high interest burden of over Rs 1,23,000 crore (Rs 1,230 billion).

The Centre received a lacklustre response in the first round as the RBI had capped the price at a minimum 7.5 per cent discount.

The bankers had pinned their hopes on an attractive premium on the buyback of securities bearing interest rates of about 10-14 per cent, which could be used for providing for the non-performing assets. Bankers are fearing that the sticky assets may rise after RBI's new norms on NPAs comes into effect from March 31, 2004.

Most of the banks were not bothered to sell the high cost securities as they were not in the business of short-selling to book profits.

The banks wanted a hefty premium as the securities were bought when the interest rates were quite higher. The securities bear a coupon rate of 6-7 per cent.

To make it attractive, Finance Minister Jaswant Singh announced in the budget that the banks can treat the premium from gilt buyback as a "business income" for income tax purposes and would be allowed additional deduction to the extent that it is used for the provisioning of NPAs.

Finance ministry officials said that the State Bank of India, which sold Rs 7,000 crore (Rs 70 billion) worth of illiquid bonds, stands to gain Rs 1,000 crore (Rs 10 billion) in the coming years.

The Life Insurance Corporation of India sold off securities worth Rs 2,000 crore (Rs 20 billion), while others like the Bank of Baroda, Bank of India, Punjab National Bank and Canara Bank sold bonds worth about Rs 1,000 crore (Rs 10 billion) each in the auction carried out on July 19.

In all, 131 offers were received, amounting to a total of Rs 14,434 crore (Rs 144.34 billion) face value. As these were above the minimum discount of 7.5 per cent, they have been accepted by the Centre.

The market value of these securities bought back by the Centre was Rs 19,394 crore (Rs 193.94 billion).

The government will save Rs 750 crore (Rs 7.50 billion) in interest payment annually in the next 5-7 years and Rs 520 crore (Rs 5.20 billion) this fiscal.

The banks will get a gross premium of Rs 3,472 crore (Rs 34.72 billion) while in net terms it comes to Rs 2,538 crore (Rs 25.38 billion).