The finance ministry has set a record target of 2.5 trillion rupees 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. Given the dearth of quality long-term debt papers in the market, the demand for sovereign notes is here to stay, he said.
To cash in on this trend, the government has tilted its borrowing toward long-tenor paper. In the current fiscal year ending March 31, the government packed 38% of its debt sales in bonds maturing in 30 years or more, up from 25% four years ago. New Delhi is due to announce its borrowing plan for the April-September period this week.
