Switch route gains traction in Centre's debt management strategy, saved Rs 560 cr so far in FY26: BoB Report

The report highlighted that one of the key tools gaining traction in the Centre's debt management strategy is conversion or switches, along with buybacks.

These are essentially a way for the government to defer its debt by choosing specific securities based on their liquidity or the volume of repayment scheduled in the future.

The report stated "Till now the interest cost advantage of the government, amounting from such an operation is far higher at Rs 560 crore".

Debt switching, also known as debt conversion, is a debt management strategy used by governments to replace old debt with new debt, typically to better manage repayment schedules or reduce interest costs.

There has been a noticeable increase in the number of conversions or switches conducted so far in FY26.

As a result, the government's interest cost advantage from such operations has risen to Rs 560 crore, a figure that is significantly higher when compared to FY25.

While the amount may appear small, the report emphasised that it holds considerable importance.

With a larger volume of repayments lined up in the Centre's borrowing calendar in the coming years, the frequency of such conversions or switches is expected to increase, leading to higher savings in interest costs for the government.

A closer look at the Centre's debt profile revealed that it has been effectively managed over the years.

The government has successfully maintained a balance between market borrowings and smaller savings schemes, ensuring that market yields remain stable without unexpected shocks.

Among the tools used to manage debt liabilities, conversions or switches have emerged as an efficient instrument.

In simple terms, they help defer repayments for certain maturity periods and are typically cash-neutral, except for the difference in the prices of buying back and selling the bonds.

Historically, the use of switching has seen significant shifts.

The report pointed out that in FY20, gross switching increased nearly five-fold, from Rs 28,590 crore to Rs 1.6 lakh crore, as the repayment burden also more than doubled during the same period.

This trend of using switches as a major tool continued till FY22. Some moderation was observed in FY23 and FY24.

However, FY26 has witnessed a renewed focus, with gross switching allocations reaching a decadal high.

The report concluded that while the current interest cost savings may appear modest, the importance of this strategy is set to grow as the government anticipates a higher repayment burden and may increasingly resort to the conversion or switching route in the near future. (ANI)