India debt investors call for higher short-term borrowing to absorb excess cash, sources say

Mumbai-based bond market participants have urged the Indian government to increase the supply of shorter-term bonds, as most lenders are sitting on surplus rupee liquidity and searching for investment options, three treasurers familiar with the matter reported on Friday. All officials declined to speak to the media due to lack of authorization.

New Delhi has started discussions with stakeholders for the fiscal half-year borrowing schedule, which will unfold until next week. The government aims to raise a record 16.09 trillion rupees ($170.33 billion) for the current fiscal year, including 7.89 trillion rupees from October to March, accounting for 49% of the annual objective.

The proposal emerged following a surge in India's banking system liquidity surplus, which crossed the 10 trillion rupees mark for the first time ever, fueled by larger-than-anticipated dollar inflows. The central bank will commence borrowing consultations this week as traders seek more ultra-long bonds. "Given the substantial rupee liquidity from key banks and limited lending opportunities, it makes sense for the government to increase short-end supply and alleviate pressure on the 10-year," a source said.

Short-duration maturities constituted 23.5% of total borrowing between April and September, up from 16.6% a year ago. Conversely, ultra-long bonds with maturities ranging from 30 to 50 years made up 24.9% of borrowing in the same period, down from 35% a year earlier. The borrowing timetable will be disclosed towards the end of the month, ahead of the central bank's monetary policy decision on October 7.