At 6.95%, states borrowing cost at 3-month high

MUMBAI: In spite of fewer states tapping the debt market and the Reserve Bank over the weekend announcing a Rs 10,000-crore liquidity window for them, states’ borrowing cost has been rising and has touched a three-month high of 6.95 per cent at the weekly auctions held on Tuesday.
The yields for state bonds have risen in spite of the RBI on June 5 announcing secondary market purchase of state debt to the tune of Rs 10,000 crore on June 17 under the G-Sap (government securities acquisition programme).
The borrowing cost for the states at the latest auction rose to a near three-month high with the weighted average cost across the states and tenures jumping by 9 bps over the past week to 6.95 per cent, Care Ratings chief economist Madan Sabnavis said in a note.
The weighted average yields of state debt have risen by 39 bps since the first auction on April 8, indicating the lower demand amid anticipated higher supply in coming periods and concerns over the economic recovery and fiscal weakness across the states, he said.
The spread between the 10-year state binds auctioned today and the 10-year G-Secs yield is a high 81 bps. The spreads have risen from around 50 bps in early April, reflecting the firming of the yields on state bonds, he added.
Six states raised Rs 11,500 crore at the today’s auction of state development loans. While five states accepted the notified amount, Gujarat accepted an additional amount of Rs 500 crore over the notified amount.
It can be noted that fewer number of states have been tapping the markets for funds so far this fiscal year over the same period last fiscal. The quantum of borrowings has been lower too with their aggregate borrowings between April 8 and June 8 are down 36 per cent y-o-y.
While 17 states and NCT of Delhi raised Rs 90,750 crore so far, as opposed to 22 states and NCT of Delhi raising Rs 1,42,726 crore in the comparable period of FY21. This is as against the tentative borrowing calendar of 27 states and Delhi raising Rs 1,39,900 crore during April 8 to June 8. But only 64 per cent of this has been raised so far.
According to this indicative borrowing calendar, Assam, Chhattisgarh, Himachal, Jharkhand, Madhya Pradesh, Odisha, and Tripura were to raise Rs 10,800 crore but none of them have come to the market yet.
This could largely be because of the lower expenditure undertaken by the states relative to their revenue coupled with the many cheaper source of funds the RBI has opened for them such as the short-term borrowing through special drawing facility and the higher ways and means advances which are linked to the repo rates, in stead of the long-term debt raising, Sabnavis said.
The ways and means advances of the states of Rs 6,473 crore as of May 28 was significantly higher than Rs 3,372 crore availed by them in the beginning of April.

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