Government saves Rs 560 crore in interest costs through bond switches amid rising debt maturity

Mumbai: The government has benefited from elongation of the debt maturity profile and savings on interest outgo through bond switches and conversions. In switches, bonds maturing in the near term are replaced with long-term papers. The interest cost advantage for the government because of the bond switches was ₹560 crore so far in this fiscal, compared with ₹54 crore in the same period a year ago, shows a study by Bank of Baroda.

"This number, however small, holds relevance. Since in the coming years with a higher quantum of repayment being visible in the Centre's borrowing calendar, the frequency of such conversion/switches is likely to increase resulting in higher interest cost advantage for the government," said Dipanwita Mazumdar, economist, Bank of Baroda. The RBI has conducted four bond switch auctions amounting to ₹1.13 lakh crore between April and July. This is higher compared with ₹86,000 crore a year ago.