* RBI aims to minimise impact on bond yields by being less visible
* Sells 43.85 bln rupees of bonds in 3 weeks via online platform
* Won't shift fully to online platform as bond volumes not large
* Move seen constrained by limited securities being traded (Adds comments and market reaction)
By Suvashree Dey Choudhury
MUMBAI, June 30 (Reuters) - India's central bank has quietly switched to using an electronic bond trading platform to manage cash levels in the debt market, hoping a more discreet approach will have less impact on bond yields, two officials familiar with the trades told Reuters.
Using an electronic trading platform that gives the Reserve Bank of India (RBI) anonymity marks a departure from its usual open market operations and from the practices of other major central banks in Asia.
The RBI had previously used open market operations to add or drain liquidity, a relatively public system that allowed traders to position themselves to try to profit from the central bank's transactions.
"The whole idea is liquidity management should not influence long-term yields," one of the officials told Reuters.
"If you impound or provide liquidity through NDS-OM, it will help in avoiding an impact on yields, which used to be there with the announcement of open market operations."
He declined to be identified as he was not authorised to speak to the media.
The central bank has sold a total 43.85 billion rupees ($730 million) of bonds in the three weeks starting May 29 through the electronic trading platform, known as the negotiated dealing system - order matching (NDS-OM), RBI data shows.
The amount bought was relatively small given that daily volumes on NDS-OM are around 300 billion rupees ($5 billion), but it marks the central bank's most active use of the NDS-OM platform since June 2012. At that time, the RBI bought bonds to infuse liquidity during a period of acute tightness in cash.
However, the official said the central bank will not be able to completely switch to NDS-OM for all of its cash management as the Indian debt market is not deep enough for large scale operations. Open market operations will still be an option but the central bank will avoid it as much as possible.
The use of NDS-OM was part of recommendations issued by a central bank panel in January on revamping the country's monetary policy framework after the appointment of governor Raghuram Rajan late last year.
The RBI did not immediately respond to questions from Reuters.
Another official said the RBI would also use trading in the NSD-OM strategically to improve trading volumes across more bonds as opposed to a few securities.
Currently, trading is concentrated mostly on the 10-year benchmark bond while the 6-year bond is a far second in terms of volume.
"The idea is to buy or sell illiquid securities as much as possible to improve the volumes on these papers," said the second official.
While other major Asian economies such as Japan, South Korea, and China have online bond trading, the central banks in those countries usually do not use the platform to manage banking system liquidity.
Many traders welcomed the central bank's efforts to temper market volatility, but some said it may not be very effective.
"It is a better way to manage liquidity but the process can get constrained if the RBI wants to sell securities as only a few number of securities are actually traded on NDS-OM," said Ashish Parthasarathy, treasurer at HDFC Bank.
Since taking the helm of the central bank in September, Rajan has spearheaded substantial reforms in the country's debt and money markets, including the introduction of term repos and reverse repos to manage cash conditions.
Rajan has largely avoided open market operations, with the central bank using it only three times in his nearly 10 months in office to buy a total of 256 billion rupees of bonds from October to January.
By contrast, the RBI under the previous governor Duvvuri Subbarao bought bonds almost every two weeks during the last fiscal year of his tenure. (Additional reporting by Pete Sweeney in Shanghai, Choonsik Yoo in Seoul and Hideyuki Sano in Tokyo; Editing by Jacqueline Wong)