States’ borrowing cost continues to fall; eases 4 bps to 7.67%

States' borrowing cost fell for the second consecutive week on Monday, with the weighted average cut-off easing by 4 bps to 7.67 per cent from 7.71 per cent in the last auction when it slid by 7 bps.

The yield on the benchmark 10-year G-secs also declined in the week by 4 bps to 7.23 per cent from 7.27 per cent last Tuesday, Icra Ratings said on Monday.

The weighted average cut-off of the 10-year state debt also eased to 7.61 per cent at Monday's auctions from 7.66 per cent last week. Accordingly, the spread between the weighted average 10-year state debt and new 10-year G-secs yield mildly fell to 38 bps from 39 bps, the agency said. At Monday's auction, six states (Andhra, Bihar, Haryana, Kerala, Punjab and Tamil Nadu) raised Rs 14,000 crore, 43 per cent lower than Rs 24,500 crore initially indicated for this week. This was the third consecutive week of lower-than-indicated issuance since the release of the double tranche of tax devolution on August 10, (Rs 1.2 lakh crore) relative to the amount released in July 2022.

Gujarat, Maharashtra, Rajasthan, Telangana, Uttarakhand, Uttar Pradesh and Bengal did not participate in the auction, even though they had indicated to borrow Rs 13,500 crore for this week. In contrast, Kerala, Punjab, and Tamil Nadu issued Rs 3,000 crore more than what they had indicated.

The cumulative state debt issuance of Rs 2.2 lakh crore by 22 states so far is 12 per cent lower than the year-ago level when it was Rs 2.5 lakh crore. Moreover, the actual issuance so far in FY23 is 33 per cent below the indicated level of Rs 3.3 lakh crore.