The Government of India have announced sale of "Floating Rate Bonds, 2006" for an aggregate amount of Rs 2,000 crore (nominal) by auction.

The Floating Rate Bonds will be of 5-years tenure and will be issued at par. (i.e. at Rs100.00 per cent). The Bonds will carry an interest rate, which is calculated by adding a 'markup' to a variable base rate. The 'mark up' will be decided in the auction to be conducted by Reserve Bank of India and will remain unchanged during the currency of the bond. The variable base rate will be the average rate of the implicit yields at cut-off prices emerging in the immediate previous six auctions of ‘Government of India 364 day Treasury Bills’ held prior to the relative half-year coupon period. The interest will be paid every half year. The base rate for calculation of interest for the first coupon period commencing from November 22, 2001 to May 21, 2002 as per the aforesaid formula is 7.06 per cent (Please see illustration enclosed). The base rate for the subsequent half yearly coupon periods, worked out as per the aforesaid formula, will be announced by RBI on or before the commencement of the respective coupon period.

In the unlikely event of 364-day Treasury Bill auctions being discontinued during the currency of the Floating Rate Bonds, the applicable variable base rate will be the average of the Yield to Maturity (YTM) rate prevailing for one year Govt. of India Security as on last six reporting Fridays prior to the commencement of the relative half-yearly coupon period, worked out in consultation with the Fixed Income Money Market and Derivatives Association of India (FIMMDA). This rate will be announced by RBI on or before the commencement of the relative half yearly coupon period.

There will be no floor or cap on the interest rate on the Floating Rate Bonds.

The Floating Rate Bonds are being issued by the Government of India, on auction basis for the first time. The bonds provide hedge against interest rate risk, offering returns linked to short term yield.

The auction will be conducted by the Reserve Bank of India (RBI) at Fort, Mumbai Office on Wednesday, November 21, 2001. Applicants who wish to bid for the Bonds will have to clearly indicate in the prescribed form (obtainable from the Regional Director, RBI, Public Debt Office, Fort, Mumbai) the nominal value of the Bonds applied for, and the 'mark-up' expected by them (up to two decimal places) over the base rate. Bids in prescribed form should be submitted at RBI, Public Debt Office, Fort, Mumbai, on November 21, 2001 during the banking hours. On the basis of bids received, RBI will determine the maximum mark-up, at which offers will be accepted. The auction will be conducted by using the Uniform Price method where bids offered up to and including the maximum mark-up as determined by Reserve Bank of India will be accepted at the maximum rate of mark-up so determined. Bids quoted higher than the mark-up rate so determined by Reserve Bank of India will be rejected.

The results of the auction will be announced on November 21, 2001 and payment by successful bidders will be during the banking hours on November 22, 2001. The bonds will be repaid at par on November 22, 2006.

Bids for underwriting of the Bonds under auction can be submitted by the ‘Primary Dealers in the Government Securities Market’ up to 2.30 p.m. on Tuesday, November 20, 2001 to the Chief General Manager, Internal Debt Management Cell, Reserve Bank of India, Central Office , Fort, Mumbai 400 001.

For any further clarifications, interested investors may approach Chief General Manager, Reserve Bank of India, IDM Cell, Central Office, Mumbai.

(Only an example)

November 22, 2001 to May 21, 2002 7.41 (Per cent per annum)

• annualised for 364 day year