India May Put Off Debt Sales on Cash Shortages, JPMorgan Says

June 14 (Bloomberg) -- India may postpone or cut the size of its scheduled bond sales this week as the payment of corporate taxes and mobile-phone license fees squeezes cash at banks, JPMorgan Chase & Co. and Securities Trading Corp. said.

Overnight interbank rates climbed to 5.43 percent on June 11, their highest level in more than two months, increasing the cost of funding to buy bonds. The average amount of cash borrowed each day by banks from the central bank’s repurchase auction window jumped six-fold last week, showing the shortage of funds. The Finance Ministry is due to auction up to 110 billion rupees ($2.8 billion) in the week beginning today, according to the government’s debt sale calendar.

“This tight liquidity situation is going to be there for quite some time, probably until at least August,” Jahangir Aziz, chief India economist at JPMorgan in Mumbai said in a June 12 telephone interview. “They may postpone the week’s auction because that’s when the big shock is going to be.”

The yield on the benchmark 7.80 percent bonds due in May 2020 rose nine basis points to 7.61 percent last week, the highest level in a month.

Wireless broadband operators will have to pay a combined 385.4 billion rupees for licenses by June 22. The payment for 110 billion rupees of bonds sold by the government last week is due today. Companies may pay up to 350 billion rupees in quarterly tax this week, said Pradeep Madhav, managing director of Mumbai-based Securities Trading Corp. of India, known as STCI.

Room for Delays

The companies that won permits to provide third-generation services last month paid 677.2 billion rupees to the government, reducing cash at banks.

“Since the government has mobilized so much money, they can truncate the borrowing for a couple of auctions,” said Mumbai-based Madhav.

Madhav predicts lenders may borrow up to 900 billion rupees from the Reserve Bank of India during this week. Banks borrowed an average of 599.3 billion rupees from the central bank through its repurchase-auction window every day last week, compared with 94.1 billion rupees the previous week.

The government plans to complete 63 percent of its record borrowing program of 4.57 trillion rupees for the fiscal year that began April 1 in the first half.