States' Borrowing Cost Falls To Nine-Week Low Of 7.73%


For the first time in many weeks, the average weighted cost of states’ borrowing declined to a nine-week low of 7.73% on Tuesday, witnessing a sharp 17 basis point fall from previous week.

Since the beginning of this fiscal year, states have been paying much higher for their market borrowings with the average yields sniffing at the 8% mark for many weeks.

But with falling international crude prices as well as the fall in the U.S. yields last week, yields on central government bonds have also dropped this week.

Reflecting this, the average weighted cost of states’ borrowings declined and hit a nine-week low of 7.73% on Tuesday, steeply down by 17 basis points (bps) from 7.9% in the previous week across tenors, Aditi Nayar, chief economist at Icra Ratings, said in a note.

Yields on the benchmark 10-year G-secs (government securities) maturing in 2032 also declined by 17 bps to 7.2% on Tuesday from 7.37% last Tuesday, benefitting primarily from the fall in US treasury yields and crude prices. However, the spreads between the 10-year State Development Loans and the benchmark 10-year G-sec yields inched up to 45 bps from 43 bps last week, according to the agency.

At the latest auctions, 15 states raised Rs 20,900 crore, which is 24% higher than the indicated level. The decline in the average cut-off also saw a dip in weighted average tenor to 13 years from 14 years and decline in cut-offs across tenors.

As the yields on the 10-year G-secs maturing in 2032 declined to 7.2% from 7.37%, the weighted average cut-off of the 10-year SDLs also eased to 7.64% from 7.8% last week. But the spread between the weighted average 10-year SDLs and the 10-year GSecs yields rose mildly to 45 bps from 43 bps.

The higher drawdown was because Himachal Pradesh, Madhya Pradesh, Meghalaya, Mizoram, and Nagaland borrowed Rs 4,100 crore despite not having indicated their participation in the auction calendar for this week, while Kerala, Punjab, and Telangana issued Rs 1,900 crore more than what they had indicated.

In contrast, Jammu & Kashmir, Maharashtra and Manipur kept away from the market, even though they had indicated a combined borrowing of Rs 2,000 crore for this week.

Tuesday’s issuance was nearly 68% higher than the year-ago level, when it was only Rs 12,500 crore. Despite this, the cumulative SDL issuance of Rs 1,84,200 crore of 22 states so far this fiscal is 11% lower than the year-ago level and the actual issuance is 32% below the indicated level.


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