FPJ news Service mumbai

A record Rs 29.6 lakh crore ($346 billion) of sovereign bonds are due over the next five years, a result of pandemic-era borrowing and Modi’s infrastructure-spending binge, Bloomberg reports. To tackle the burden, the RBI and the government are swapping maturing debt with longer-dated notes. PM Narendra Modi has a $346 billion debt problem that his administration wants help from the nation’s households.

These refinancing debt auctions are gaining momentum thanks to an increasingly influential player: households. They’ve been pouring money into insurers, which in turn are buying heaps of long-dated sovereign bonds. The demand is so great that the head of Life Insurance Corp. of India, the nation’s largest, even floated the idea of issuing a 100-year paper.

“Households are looking to deploy their savings pool in instruments that provide a longer-term investment horizon than the conventional banking system,” says Soumyajit Niyogi, director at India Ratings, a unit of Fitch Ratings.  This shift is transforming India’s government securities market, he said.

The finance ministry has set a record target of 2.5 trillion rupees (Rs 2.5 lakh crore) of debt to be swapped for the fiscal year starting April 1. With the insurance sector expanding at 12%-13% annually, the goal is within reach, according to Vidya Iyer, head of fixed income at ICICI Prudential Life Insurance, which had 3.1 trillion rupees in assets as of December.

The debt swap strategy paid off last year. In the September quarter, the average yield on new issuances eased by 20 basis points to 6.9%, while their maturity stretched to 20.5 years, according to the latest government data. Insurers, keen for longer-term assets to match their liabilities, have piled into these switch operations, said Ajit Banerjee, chief investment officer at Shriram Life Insurance Ltd.