RBI sets cut-off commission for govt securities underwriting auction

The RBI announced the results of the underwriting auction for two government securities. It set the cut-off commission for the 6.36% GS 2031 at Rs 0.28 per Rs 100 and for the 7.71% GS 2066 at 0.68 paise per Rs 100 under the ACU process.

The Reserve Bank of India (RBI) on Friday announced the results of the underwriting auction conducted for Additional Competitive Underwriting (ACU) of two Government of India securities, setting cut-off commission rates for primary dealers. According to the central bank, the auction was held today for the 6.36 per cent Government Security (GS) maturing in 2031 and a 7.71 per cent Government Security (GS) maturing in 2066. The ACU process allows primary dealers to competitively bid for the right to underwrite additional portions of the notified amount of government bonds, over and above their minimum underwriting commitments.

Auction Results in Detail

For the 6.36 per cent GS 2031, the notified amount was Rs 21,000 crore. The minimum underwriting commitment (MUC) stood at Rs 10,500 crore, with the remaining Rs 10,500 crore accepted under ACU. The cut-off commission rate for the ACU portion was set at Rs 0.28 per Rs 100.

In the case of the 7.71 per cent GS maturing in 2066, the notified amount was Rs 11,000 crore. The MUC was Rs 5,502 crore, while the ACU amount accepted was Rs 5,498 crore. For this, the ACU commission cut-off rate was 0.68 paise per Rs 100.

Understanding the Underwriting Process

Underwriting of government securities is a critical function performed by primary dealers to ensure smooth borrowing operations by the government. In this system, primary dealers commit to subscribing to unsold portions of government bond issuances, thereby assuring full subscription.

The ACU mechanism allows the government to allocate additional underwriting amounts through a competitive bidding process, where the commission rate is determined based on market demand.

The RBI's announcement comes as part of its routine government securities issuance calendar, which is a key instrument for managing the fiscal requirements of the government and influencing liquidity in the financial system.

Primary dealers, a select set of financial institutions authorised by the RBI, play an essential role in underwriting and distributing these securities in the secondary market. (ANI)

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