As many as 19 states had lined up to borrow up to Rs 37,500 crore, but managed to raise only Rs 32,560 crore.
Battling with the economic slowdown and countrywide lockdown due to the coronavirus pandemic, many state governments have reportedly accepted unfavourable demands from domestic investors to keep finances afloat.
Nineteen states agreed to hiked rates of 140-200 basis points (1.4 to 2 percent) over equivalent government securities to raise Rs 32,560 crore on April 7 from the bond market, Business Standard reported.
The rates of equivalent maturity government securities are usually 60-70 basis points (0.6 to 0.7 percent).
The amount was raised against a target of Rs 37,500 crore and came even as domestic investors, looking to secure their own liquidity, put up negative terms to discourage bidding states, and foreign portfolio investors continue to pull out from markets, it added.
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“There is absolutely no demand. So banks bid in such a way that almost guaranteed rejection. But the states accepted the bids,” the head treasurer of a bank told the paper.
Moneycontrol could not independently verify the report.
Markets closing early has also become a problem. On April 7, bond and currency markets shut at 14.00 hours (2 pm) rather than the usual 17.00 hours (5 pm) and will continue to do so till April 17.
The source added that this could now be the norm and the Centre may also have to shell out more unless the Reserve Bank of India (RBI) conducts secondary market bond purchases through open market operations.
States plan to borrow Rs 1.27 trillion for the quarter, while the Centre is looking at raising Rs 19,000 crore to Rs 21,000 crore weekly borrowing. These have not been supported by the RBI yet. The government has said it plans to borrow Rs 4.88 trillion (63 percent of programme) from the market in the first half of the fiscal.Follow our full COVID-19 coverage here