States borrow 37.7% less than expected from the bond market in Q4FY22

Gross SDL issuance of Rs 2,353 billion in the quarter was much lower than Rs 3,240 billion, which had been indicated in this quarter’s auction calendar. (Photo:Pexels)

State development loans (SDL) for the fourth quarter of FY22 was a significant 37.7% lower than had been expected, thanks to increased transfers from the Central Government, according to a report by the debt rating agency ICRA.

Gross SDL issuance of Rs 2,353 billion in the quarter was much lower than Rs 3,240 billion, which had been indicated in this quarter’s auction calendar. The rating agency has said that this was in line with their expectation.

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Also, the issuance for the fiscal was lower than that for the previous fiscal, both in gross and net numbers. “Gross and net SDL issuance in FY2022 was ~12% and ~24% lower than FY2021, respectively,” said the report.

Rising borrowing costs

With the rising oil prices and the geopolitical tensions, there are concerns about rising borrowing costs for the states. In the auctions held on March 8, the weighted average cut-off of the aggregate SDL issue had gone up to 7.29%--the highest this fiscal. The borrowing costs have remained elevated this fiscal when compared to the last. In this latest report, ICRA said, “Weighted average cut-off SDLs in FY2022 stood at 6.98%, a sharp 43 bps higher than last year”.

Therefore, increased transfers from the Centre is welcome.

The transfers included better tax devolution in January 2022 (Rs. 951 billion) and February 2022 (Rs. 1,473 billion); goods and services tax (GST) compensation grant of Rs. 180 billion; and an ad-hoc settlement of Rs. 350 billion of Integrated GST revenues in January 2022.

State-wise differences

Five states were largely responsible for the lower than expected borrowing.

“Nearly 81% of the lower-than-indicative issuance in Q4 FY2022 was on account of Maharashtra (by Rs. 175 billion), Andhra Pradesh (by Rs. 151 billion), Punjab (by Rs. 145 billion), Karnataka (by Rs. 130 billion) and Uttar Pradesh (by Rs. 118 billion),” the report said.

In contrast, six states/Union Territories (UTs) borrowed more than indicated in Q4 FY2022.

The higher-than-expected borrowing was done by Tamil Nadu (by Rs. 92 billion), Rajasthan (by Rs. 62 billion), Jammu & Kashmir (by Rs. 9 billion), West Bengal (by Rs. 7 billion), Manipur (by Rs. 3 billion) and Puducherry (by Rs. 1 billion).