NEW DELHI/MUMBAI, May 21 (Reuters) - The Indian government is open to buying back more bonds and cut borrowings through treasury bills as part of its short-term cash management, a source familiar with the matter said on Tuesday.
"We are open to cutting T-bill issuances but it will depend on government's spending needs. And this will only be short term cash management," the source added, speaking on condition of anonymity.
A six-week national election has delayed government spending and higher tax revenues have left it with surplus cash which it has been looking to reduce by buying bonds from the market.
But its third consecutive bond buyback saw little interest from investors with the Reserve Bank of India accepting bids to buy back only 52.7 billion rupees ($632.75 million), less than 10% of the planned 600 billion rupees.
Over the past three weeks, along with buyback announcements, the government has also cut back on planned treasury bill borrowings for the next six weeks.
The source said it would look at buying back more bonds in the coming weeks.
Two other sources said spending by federal government was likely to remain slow until about August when the new government settles in.
The government's bond buybacks will also help in lowering its interest costs, the first source said.
The finance ministry did not immediately respond to an email seeking comment.
Bond buybacks are also expected to help perk up banking system liquidity, which is facing an average deficit of 1.2 trillion rupees so far in May.
The source said the government would use various instruments to manage surplus cash in the coming months, but it had not yet decided to lower its planned 14.13 trillion rupees of market borrowing for 2024/25.
A cut in borrowing can only be decided after the new government comes to power and the final budget for the year is presented, the two other sources said.
($1 = 83.2750 Indian rupees) (Reporting by Nikunj Ohri and Swati Bhat; Additional reporting by Aftab Ahmed; Editing by Varun H K and Mark Potter)
