India Cancels $3 Billion Of Treasury Bill Sale Amid Tight Cash

India's central bank did not accept any bids for 91 and 182-day treasury bills in an auction Thursday amid a cash squeeze in the nation's banking system.

The Reserve Bank of India rejected bids for 260 billion rupees ($3 billion) of sales, it said in a statement. The authority sold 70 billion rupees of 364-day bills at 6.5638%, the statement added.

India's banking system liquidity remains in deep deficit despite recent cash injection measures by the RBI. Banks have borrowed about two trillion rupees from the central bank as of Wednesday, according to a Bloomberg Economics index. 

“The government is likely to be sitting on a relatively comfortable cash balance now after tax collections, so the RBI may have decided to take the step to support banking system liquidity,” said Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank. 

The central bank has added one trillion rupees to the system via open market bond purchases over three auctions since late last month. It has also injected $5 billion equivalent of liquidity via a forex swap and has been doing variable repo auctions of longer tenor t-bills.

“It would appear that the RBI would be providing liquidity through OMOs and longer-term repo operations, while ensuring that less cash drains out through the sales of t-bills,” said Rajeev Pawar, head of treasury, Ujjivan Small Finance Bank.

The five-year bond was trading steady at 6.65% after Thursday's t-bill sale result.

In May, the RBI had announced a lower borrowing for the government through treasury bills, a move that came days before the authority transferred a large dividend to the it. The payout to the government typically improves liquidity in the banking system over time.