In other words, if in the RBI’s assessment the market would not be in a position to absorb the debt without disruption, it resorts to private placement. Third, when the bids in auction are unacceptable, the RBI takes on a devolvement, which in actual practice has been negligible during the last two years.
Primary Dealers underwrite issues of Government paper for which they are paid underwriting commission. Thus, the twin combination of high fiscal deficit and a narrow and not so liquid market necessitates RBI intervention in the interest of financial stability. There are, however, no rules regarding sale of securities taken on private placement in terms of maximum period of holding etc.