State Borrowing

The RBI provides WMA to states banking with it to help them tide over temporary mismatches in the cash flow of their receipts and payments

Amid continuing lower supplies, the borrowing cost for states fell to a 32-week low of 7.40 per cent Tuesday, down by 4 bps from the previous week's auctions. Throughout January, the interest rates were hovering at a two-year high of close to 7.9 per cent. Then rates started falling after states began to auction lower than earlier disclosed debt after the government cleared the Central share of tax devolution in early February. Eleven states raised Rs 28,000 crore from state government securities (SGS), which is 27 per cent lower than the Rs 38,200 crore indicated for this week in the auction calendar, according to a note by Icra Ratings. As a result, the weighted average cut-off eased by 4 bps to 7.40 per cent, the lowest in the past 32 weeks. The fall in the pricing was despite a mild increase in the weighted average tenor to 15 years from 14 during the week. The spread between the cut-off of the 10-year state bonds and the benchmark 10-year G-sec (7.18 GS 2033) yield narrowed t

The borrowing cost for states continued to fall for the third week in a row, with the weighted average price falling to 7.44 per cent in the debt auction on Tuesday. The cost had remained at a two-year high throughout January sniffing at 7.8 per cent. However, the overall cost has been falling since the interim Union Budget, which forecast a lower than anticipated borrowing and a fiscal deficit target of 5.8 per cent for this fiscal and 5.1 per cent for the next financial year. The weighted average cut-off rate eased by 2 basis points to 7.44 per cent on Tuesday, with issuance trailing the indicated amount for the fifth consecutive week, Icra Rating said in a note. Twelve states raised Rs 32,800 crore through State Government Securities (SGS) on February 27 and the amount is 27 per cent lower than the highest-ever weekly auction of Rs 45,200 crore indicated for this week in the fourth quarter auction calendar. Both limited supply and the falling overall interest rates pulled down

The Kerala government has flayed the Centre's stand to allow the state to borrow money only if it withdrew the case before the Supreme Court, terming it "highly disappointing" and detrimental to fiscal federalism. Addressing media here on Monday, state Finance Minister K N Balagopal claimed that the central government has informed the apex court that if Kerala withdraws its petition, the government will give the state permission to borrow around Rs 12,000 crore on Monday itself. "The state government has filed the case in the Supreme Court for the fund which is rightfully ours," he said. "The Union government's stand is highly disappointing and will affect the fiscal federalism of the state and the day-to-day activities of the state government," Balagopal added. "Our lawyer Kapil Sibal argued for us and said we were seeking the amount that is rightfully ours. We have filed the petition seeking the fund as per our constitutional rights. They have asked us to withdraw our plea and it

Uncontrolled borrowing by states would affect the credit rating of the whole country and the fiscal edifice of Kerala has been diagnosed with "several cracks", the Centre has told Supreme Court on the issue of limits imposed on the state's borrowing capacity. In a note submitted before the top court, Attorney General R Venkataramani submitted that public finance management is a national issue. Venkataramani said if the State indulges in reckless borrowing to finance unproductive expenditure or poorly targeted subsidies, it will crowd out private borrowing from the market. "Debt of States affects the credit rating of the country. Moreover, default by any State in debt servicing would create reputational issues and will have domino effect endangering the financial stability of the whole of India," the note said. The AG said uncontrolled borrowing will lead to increase in the borrowing costs of private industries and adversely impact the production and supply of goods and services in

Earlier in the day, states raised Rs 16,000 crore ($1.92 billion), the lowest for a weekly auction, via 10-year bonds at around 7.74 per cent

The government transferred the amount to states as tax devolution for financing various social welfare measures and infrastructure development schemes

The Kerala government has approached the Supreme Court accusing the Centre of interfering in exercise of its "exclusive, autonomous and plenary powers" to regulate the state's finances by imposing a ceiling on net borrowing. In an original suit filed under Article 131 of the Constitution, the Kerala government has said the Constitution bestows fiscal autonomy upon states to regulate their finances under various articles, and the borrowing limits or the extent of such borrowings are regulated by a state legislation. Article 131 of the Constitution deals with original jurisdiction of the apex court in any dispute between the Centre and states. The suit referred to the letters dated March 27 and August 11, 2023 issued by the Centre, through the Ministry of Finance (Public Finance-State Division), Department of Expenditure, and the amendments made to section 4 of the Fiscal Responsibility and Budget Management Act, 2003. It alleged that the Centre "seeks to interfere with the finances

Finance Minister Nirmala Sitharaman on Monday said there is no proposal to relax the existing terms for borrowing capacity of state governments, including Kerala for 2023-24. Kerala has requested the Centre to allow an additional borrowing equivalent to one per cent of Gross State Domestic Product (GSDP) over and above the borrowing ceiling fixed for 2023-24 fiscal year. In a reply in the Lok Sabha, Sitharaman said the Centre applies a common yardstick while fixing the annual borrowing limit of all state governments under Article 293(3) of the Constitution. In doing so, it is guided by the recommendations of the Finance Commission, she said. To a question on whether the Centre proposes to relax the existing borrowing terms considering the financial crisis of Kerala, Sitharaman replied in the negative. For current fiscal year, the gross borrowing ceiling of Kerala has been fixed at Rs 47,762.58 crore. Out of this, Rs 29,136.71 crore is Open Market Borrowing (OMB) while the rest is

States have been forced to pay through their nose at the weekly auction of their debt on Tuesday with the weighted average interest rate payable soaring to the highest so far this fiscal at 7.68 per cent, 12 basis points (bps) more than the previous peak at the last auction. The prices shot up reflecting the overall higher risk averseness of investors with the rising interest rates along with higher demand, which rose by 14 per cent at the auction in spite of a jump in the average tenor to 15 years from 13 years last week. Eight states raised Rs 9,600 crore through state government securities (SGS) on Tuesday, which is 13.6 per cent higher than the amount indicated for this week in the auction calendar, according to Aditi Nayar, the chief economist at Icra Ratings. The sharp increase in the cutoffs of the 10-year and above issuances in the auction pushed the weighted average cut-off to 7.68 per cent, the highest in FY24 so far, up from 7.56 per cent last week, she said. The weighte

States' borrowing cost jumped 10 basis points to 7.56 per cent at the first weekly debt auction of the third quarter on Tuesday and is the highest in the the past 23 weeks. Fourteen states raised Rs 22,500 crore through the issuance of state government securities in line with the indicated amount for this weekly auction for the third quarter calendar. According to Aditi Nayar, the chief economist at Icra Ratings, the auctions saw a steep increase in the cut-offs across tenors leading to the weighted average cost jumping to a 23-week high of 7.56 per cent. It stood at 7.46 percent last week. The higher pricing of the borrowing is despite a steep decline in the weighted average tenor to 13 years from 17 years, Nayar said. Moreover, she said the spread between the cut-off of 10-year state bonds and the new 10-year G-Secs (7.18 GS 2033) yield rose mildly to 33 bps from 32 bps last week. On an annualised basis to the week, the states have drawn down 15.4 per cent more than what they

With the opposition targeting the AAP government in Punjab over the state's debt, its finance minister Harpal Singh Cheema on Monday said that Rs 27,000 crore from around Rs 47,000 raised in the last 18 months has been paid as interest on the borrowings under previous governments. He accused the Congress, BJP and the Shiromani Akali Dal of spreading false propaganda against the AAP government after the opposition parties accused the Bhagwant Mann dispensation of pushing the state to the brink of financial calamity with an addition of Rs 50,000 crore more debt since it came to power last year. The opposition parties had latched onto the issue to target the Mann government after Punjab Governor Banwarilal Purohit in his letter to the CM said that he had learnt that the debt of Punjab rose by about Rs 50,000 crore during your regime. On Monday, state Finance Minister and senior Aam Aadmi Party leader Cheema also appealed to the Punjab governor to help the state government in getting ..

According to the report, the aggregate loss of 68 discoms increased by 66 per cent to Rs 50,281 crore in FY21

Eight states raised Rs 15,900 crore from auctioning their debt, or state government securities, on Tuesday at a coupon of 7.42 per cent, 6 basis points (bps) less than the previous auction. The debt raising of Rs 15,900 crore was nearly 45 per cent lower than the indicated amount for the week in the auction calendar, Icra Ratings said in a note. Despite the increase in the weighted average tenor to 14 years from 11 years, the weighted average cut-off dipped to 7.42 per cent in the auction, down from 7.48 per cent in the auction last week, following softening in the yield of Government Securities (G-Secs) across tenors. As a result, the spread between the cut-off of 10-year state government securities and the new 10-year G-Sec yield eased mildly to 29 bps from 30 bps last week, the agency said.

Kerala Finance Minister K N Balagopal on Friday hit out at the BJP-led union government for cutting down the borrowing limit of the southern state by half and accused the Centre of "targetting" it. The minister said the state was expecting Rs 32,442 crores when the Centre had cut down the borrowing limit from 3.5 percent to 3 percent. But a recent letter from the central government has put the borrowing limit to Rs 15,390 crores, which is half of what Kerala is entitled to borrow, he alleged. "The move is part of the union government's political vendetta," Balagopal said. The Centre is denying the federal rights of a state, he further said and added that no reason was given for cutting down the borrowing limit by half. Expressing concern over whether the development would affect the budget plans of the southern state, he said people are going to suffer as the Centre is denting Kerala's rightful share. The union government has been cutting down funds to Kerala while providing upto

Despite near 60 per cent more supplies, the states continued to pay more for their market borrowing with the average bond pricing rising by 7 basis points to a multi-week high of 7.68 per cent at the weekly auction on Tuesday. For the past many weeks, the yields were more or less stagnant and so was the debt-raising. Fourteen states raised a record-high Rs 32,800 crore from the market by issuing state government securities (SGS), which is a sharp 59 per cent higher than the year-ago level, even though the amount is 8 per cent lower than indicated in the auction calendar, Aditi Nayar, the chief economist & head of research at Icra Ratings said in a review note. She said the 7 bps rise in the weighted average cut-off to 7.68 per cent is due to the concerns related to monetary tightening as latest inflation numbers surprised on the downside. However, despite the all-time high borrowing and a mild increase in the weighted average tenor to 16 years from 15 years, the spread between the

After remaining stable for many weeks, the cost of borrowing for states inched up by 5 basis points to 7.64 per cent at Tuesday's auction when 15 of them raised Rs 25,700 crore from the market. The amount of debt raised today is a 13-week high and for the first time shows an annualised growth of 8 per cent year-to-date -- a first as throughout the year, the weekly borrowing has been below the year-ago weeks, yet 15 per cent lower than the indicated amount in the borrowing calendar, according to a note by Icra Ratings. The weighted average cut-off on state government loans rose 5 basis points to 7.64 per cent over the previous week, and the weighted average tenor rose to 13 years from 11 during the week. The spread between the 10-year state bonds and G-sec (government securities) yield stood at 30 basis points today, amidst an inverted yield curve, according to Aidti Nayar, chief economist and head research and outreach at Icra, said. States have cumulatively raised Rs 5.12 lakh cro

The borrowing cost of states continued to remain low for the second week with the latest auction on Tuesday seeing average yield staying almost flat at 7.68 per cent. Many states stayed away from the market following disbursal of the tax devolution amount by the Centre earlier this month. The weighted average yield/cut-off of State Government Securities (SGS) inched up by 1 basis point to 7.68 per cent at the auction on Tuesday compared to the past week despite a sharp increase in the weighted average tenor to 17 years from 12 years, Icra chief economist Aditi Nayar said in a note. Normally bond prices change according to the tenor of the issue, and the 10-year bonds are considered the benchmark when it comes to pricing and also from a demand perspective. At Tuesday's auction, the states issued bonds of varying tenor, peaking at 25 years (Tamil Nadu issued 25-year paper at 7.63 per cent) pushing up the median average tenor sharply to 17 years from 12 years last week. However, the

Market borrowing cost for the states remained high with the average yield hitting 7.83 per cent at the auctions held on Tuesday, which is a paltry 1 basis points lower than the last auction of state securities. Seven states raised Rs 10,700 crore at Tuesday's auction of state government securities (SGS), which is just about half of the Rs 20,800 crore indicated for the week. The weighted average cut-off slipped to 7.83 per cent from 7.84 per cent last week, despite the rise in weighted average tenor to 15 years from 13, Icra said in a note. However, the yield on 10-year G-secs declined by 4 basis points (bps) to 7.40 per cent while the weighted average cut-off for 10-year state bonds slipped only by 1 bps to 7.82 per cent. Accordingly, the spread between the weighted average cut-off of 10-year state bonds and the 10-year G-sec yield rose to 42 bps from 39 bps. The reason for the massive fall in the draw-down is because big borrowers like Haryana, Karnataka, Maharashtra, Tamil Nadu,

The average cost of market borrowing for states rose 12 basis point to 7.77 per cent on Monday, increasing for the third consecutive week. The cost of funds has seen a cumulative hike of 31 basis points (bps) during the past three weeks. At the latest auction of debt, 10 states raised Rs 19,500 crore on Monday, drawing down the full amount indicated for this week. The weighted average cut-off of the debt rose by 12 bps to 7.77 per cent from 7.65 per cent in the last auction, despite the weighted average tenor declining to 13 years from 15 years, Aditi Nayar, chief economist at Icra Ratings, said in a note. Before the yields began to climb three weeks ago, for four successive weeks the rates had been falling and had touched a low of 7.46 per cent. She attributed the spike in the cut-off to the rise in US treasury yields and the hike in the 50 bps repo rate by the RBI last Friday. Reflecting the hardening interest rate regime, the 10-year G-secs (Government Securities) yield increas