Tuesday, February 7, 2012

Debt buyback

Dear Comrades,

The RBI Deputy Governor is reported to have said that “the aggregate objective of OMOs is to put in a certain amount of liquidity into the market and not help the government borrowings… Reality of the situation is OMO is driven by liquidity shortage, not by the government borrowing.” (“RBI hints at more OMOs to tackle liquidity crisis”, Business Line Web site, February 4). In this context I would like to cite the following extract from para 28 of the Annual Policy Statement of the Bank for 2009-10 in relation to buybacks of securities: “Keeping in view the large budgeted government market borrowing in 2009-10 coming on top of a substantial expansion in market borrowing in 2008-09, it was important for the RBI to provide comfort to the market so that the borrowing programme is conducted in a non-disruptive manner. Accordingly, the central bank simultaneously indicated its intention to purchase government securities under open market operations (OMO) for an indicative amount of Rs 80,000 crore during the first half of 2009-10.”

This is with reference to “Banking on India Post” (Business Line, February 6.) The basic function of delivery of mail is not being done by the post office in an efficient manner. Setting up a ‘National Bank of India Post' is a good proposal and needs follow up.

To avoid the weaknesses of a government organisation, the bank should have at least 49 per cent private sector partnership.

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