By Dharamraj Dhutia

MUMBAI (Reuters) - A weaker majority for the Prime Minister Narendra Modi-led alliance may increase welfare spending but not result in additional borrowing, limiting a rise in bond yields, a top executive at India's Kotak Mahindra Bank said.

Modi's Bharatiya Janata Party failed to get an outright majority in the recently concluded parliamentary elections, making them dependent on support from regional parties to form a government.

That raised concerns that the new government will take populist measures, which will increase spending and could, in turn, see additional borrowing pressure.

"I do not expect the government to raise gross borrowing for the current financial year in the final budget as they have received an unexpectedly large amount as dividend from the Reserve Bank of India," said Rajeev Mohan, president of treasury and global markets at Kotak Mahindra Bank, the country's fourth largest private lender in terms of assets.

The Indian government will table the final budget for this year before end of July.

Last month, the RBI transferred a record surplus of 2.11 trillion rupees to the central government, more than double of expectations. That money "can be easily used for any welfare schemes that they may undertake," Mohan said in an interview late Thursday.

India's gross borrowing is aimed at 14.13 trillion rupees ($169.32 billion) in the current financial year, aiming to contain fiscal deficit at 5.1%.

Mohan also ruled out any possibilities of a supply cut, as speculated by some sections of the market.

At best, the government could "cancel auctions occasionally if the yield that the market demands is higher than their expectations," he said.

On Tuesday, the 10-year benchmark bond yield shot above the 7% mark and witnessed its biggest single session rise in eight months, as voting trends and counts turned out to be sharply different from exit poll predictions of a thumping BJP majority.

Mohan said demand from banks as well as long-term investors will continue to support the benchmark and the 10-year yield may not rise above 7.10% mark over the next six months.

He also said he prefers longer duration bonds due to higher demand and lower supply, expecting yields to decline long-term, while visibility on liquidity remains low.

"On the downside, I do not see the 10-year yield crossing the 6.90% mark till we see the RBI delivering a cut in repo rate. Our base case for an interest rate cut is December, as inflation is expected to reach closer to the 4% target by then," Mohan said.