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

Indian bond market participants have urged the government to boost short-term borrowing to accommodate excess rupee liquidity, sources revealed on Friday. Most lenders are currently sitting on surplus cash and seeking investment opportunities, according to three treasury officials who requested anonymity due to their unauthorised status to speak to the media.

The Indian government has initiated discussions with market participants to determine the fiscal second-half borrowing calendar, which will persist until the following week. The aim is to raise a record ₹16.09 lakh crore ($170.33 billion) for the current fiscal year, including ₹7.89 lakh crore from October to March, accounting for roughly 49 percent of the annual goal.

This proposal emerged after India's banking system reported a liquidity surplus exceeding ₹10 lakh crore for the first time, attributed to larger-than-expected dollar inflows. With such significant rupee liquidity from most major banks and limited lending options, it is logical for the government to raise short-end supply and alleviate pressure on the 10-year bond, as one official noted.

Short-duration maturities constituted 23.5 percent of total borrowing for April-September, up from 16.6 percent a year ago. Conversely, ultra-long bonds with 30 to 50-year maturities accounted for 24.9 percent of April-September borrowing, down from 35 percent a year earlier. The borrowing calendar is expected to be unveiled at the end of the month, preceding the central bank's monetary policy decision on October 7.