"Notwithstanding the relatively lower budgeted market borrowings from the central government in 2011-12, managing the borrowing programme would be a challenge because of tight liquidity conditions and the high level of excess SLR holdings from the banks, " the Reserve Bank said in its Annual Report.
Gross government borrowings in the present fiscal (2011-12) are pegged at Rs 4. 17 lakh crore, down through Rs 4. 37 crore in 2010-11.
Of this, the government is planned to borrow Rs 2. 50 lakh crore in the first half, because against Rs 2. 84 lakh crore in the corresponding April-September period this past year.
The tight liquidity conditions would make market borrowing difficult for the federal government. Also, the private sector might face some problems, as there would be less funds available for sale for them.
Moreover, the higher Statutory Liquidity Ratio (SLR) of banks would restrict them from buying bonds floated through the government.
The apex bank also said that the government's ability to rein within the fiscal deficit would influence the conduct of the market borrowing programme in the present fiscal.
The government has estimated the fiscal deficit target at 4. 6% in the present fiscal, down from 4. 7% last year.
"The conduct of the market borrowing programme will be influenced by the power of the government to rein in the fiscal deficit and its financing by means of market borrowings, " the report added.