RBI announces Rs 25,000 crore bond sale and special dollar facility for oil firms

The Reserve Bank of India is stepping up efforts to manage excess cash in the banking system and support the rupee, launching a Rs 25,000 crore government bond sale alongside a dedicated dollar facility for the country's major state-run oil refiners.

The central bank will hold an open market operation auction on 13 October to sell six government securities maturing between March 2030 and April 2034. The paper on offer includes coupon rates ranging from 6.10 per cent to 7.95 per cent. RBI retained the discretion to decide the allocation for each security or accept bids below the notified amount.

Draining surplus banking liquidity

The bond sale aims to pull cash out of the financial system, where liquidity was running at an estimated surplus of around Rs 3.88 lakh crore as of 8 October. That surplus was driven by strong foreign currency inflows from Foreign Currency Non-Resident deposit mobilisation, which were swapped into rupees, alongside routine government expenditure on month-end salaries and pensions.

To align money market rates with the repo rate, RBI has conducted several variable rate reverse repo auctions in recent months. Speaking after the monetary policy meeting on 6 October, RBI Governor Sanjay Malhotra said the central bank intended to absorb the liquidity overhang over the current financial year through open market operations, currency leakage, and bank reserve requirements.

Dedicated dollar access for oil refiners

Alongside the bond auction, RBI is opening a special foreign exchange window from 12 October for three state-run oil marketing companies: Indian Oil Corporation Ltd, Bharat Petroleum Corporation Ltd, and Hindustan Petroleum Corporation Ltd.

Under this arrangement, the three refiners can source their entire daily dollar requirement for crude purchases through designated banks directly from RBI, rather than buying foreign exchange in the open market. Together, these three firms account for roughly 90 per cent of petroleum product sales in India, with Indian Oil representing 40 per cent, Bharat Petroleum 30 per cent, and Hindustan Petroleum 20 per cent.

Bypassing the open market for such large dollar orders removes a significant source of routine downward pressure on the rupee. The central bank stated that the dollar facility will remain active until further notice.