Press Releases

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Date : Dec 03, 2001
Government of India announces issue of Floating Rate Bonds, 2009

The Government of India has announced sale of 'Floating Rate Bonds, 2009' for an aggregate amount of Rs 3,000 crore (nominal) by auction.

The Floating Rate Bonds will be of 8-years tenure and will be issued at par. (i.e. at Rs100.00). The Bonds will carry an interest rate, which is calculated by adding a 'spread' to a variable base rate. The 'spread' will be decided in the auction to be conducted by the 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 December 6, 2001 to June 5, 2002 as per the aforesaid formula is 6.99 per cent (Please see illustration). 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). In case particular Friday/s is/are holiday/s, the yield to maturity rates as on the previous working day shall be taken. This rate will be announced by the 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 second time. For details on the first auction of FRBs please click here. The Bonds provide hedge against interest rate risk, offering returns linked to short term yield.

Auction Details

The auction will be conducted by the Reserve Bank of India, Mumbai Office, Fort, Mumbai on Wednesday, December 5, 2001. Applicants who wish to bid for the Bonds will have to clearly indicate in the prescribed form (obtainable from the Regional Director, RBI, Mumbai Office, Fort, Mumbai or by clicking here) the nominal value of the Bonds applied for, and the 'spread' expected by them (up to two decimal places) on the base rate. Bids in prescribed form should be submitted at RBI, Mumbai Office, Fort, Mumbai, on December 5, 2001 during the banking hours. On the basis of bids received, the RBI will determine the maximum spread, 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 spread as determined by the Reserve Bank of India will be accepted at the maximum spread so determined. Bids quoted at spreads higher than the spread determined by the Reserve Bank of India will be rejected.

Results

The results of the auction will be announced on December 5, 2001 and payment by successful bidders will be during the banking hours on December 6, 2001. The Bonds will be repaid at par on December 6, 2009.

Underwriting

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, December 4, 2001 to the Chief General Manager, Internal Debt Management Cell, Reserve Bank of India, Central Office , Fort, Mumbai 400 001.

Clarifications

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

Illustration

Base rate and rate of interest payable on Floating Rate Bonds 2009
Calculation of Base Rate applicable for half-year ending June 5, 2002

Serial No.

Date of Auction

Cut-off Price

Implicit yield *

(in Rs)

at cut-off price

(in per cent)

1.

19-Sep-01

93.18

7.3192

2.

3-Oct-01

93.36

7.1123

3.

17-Oct-01

93.31

7.1696

4.

31-Oct-01

93.58

6.8604

5.

13-Nov-01

93.62

6.8148

6.

28 Nov-01

93.74

6.6780

Total

41.9543

41.9543

Base Rate =

-----------

6.9924

6

 

Rounded off to two decimal places

=

6.99 (per cent per annum)

If the Spread decided in the auction is

=

0.35

(Only an example)

Interest rate applicable for half year

December 6, 2001 to June 5, 2002

=

7.34 (per cent per annum)

  • annualised for 364 day year

Alpana Killawala
General Manager

Press Release no. 2001-2002/646


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