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Ahead of the financial year’s closure, State governments mobilised a record ₹50,206 crore on Tuesday through the auction of State Development Loan (SDL) bonds, even as their total borrowings in 2023-24 are likely to be far lower than the ₹10.88 lakh crore States had projected.
While the record mop-up was 81% higher than the ₹27,500 crore indicated for this week, liquidity pressures pushed up States’ borrowing rates and widened the gap between central government and state government bond yields. “The weighted average cut-off of the State government securities climbed to 7.45% from 7.38% last week,” rating firm ICRA noted.
Noting that yields inched up due to supply-side pressures, Bank of Baroda economist Sonal said that 10-year government bond yields have also risen by six basis points to 7.09% over the past week, but similar tenure State loans’ cut-off yields have increased at a sharper pace to a range of 7.44% to 7.5%. One basis point equals 0.01%.
The final auction of State government bonds for this year is scheduled for next week, with the indicative auction calendar penning in about ₹29,400 crore of borrowings and the cost of borrowings is expected to stay high. So far, States have borrowed ₹9.28 lakh crore so far this year, and are not expected to hit their projected borrowing plans, even if they raise more than the indicated amount for next week.
