Borrowing costs

At 6.96%, borrowing costs remain high for states

Cash-strapped states continue to pay more for market borrowing, being forced to offer yields close to 7% even as the system is awash with liquidity amid benign interest rates, report says .

The six states that went to market to auction state government securities on Monday to raise 8,700 crore rupees had to bid 6.96% on a weighted average level, or 3 basis points (bps ) less than previous weekly auctions.

A higher cost forced Haryana to reject the entire bid for its bid of Rs 1,000 crore, while other states accepted the notified amount.

The weighted average cost of borrowing in states and mandates was 6.96%, just 3 basis points lower than auctions held last week. The drop can be attributed to the easing in global crude prices following the agreement of major oil producers over the weekend to increase oil production, Care Ratings said.

The cost of market borrowing for states has been above 6.9% since the third week of June. It has risen 21 basis points since mid-June and 40 basis points since April 8, according to the report.

The spread between 10-year government bonds and the secondary market yield of new 10-year G-secs remained stable at 88 basis points, similar to last week. Spreads increased by around 50 basis points in early April.

The cost remains high although state borrowing has so far been 13% lower on an annual basis. Twenty-three states and Delhi have raised a total of Rs 1,86,850 crore so far this financial year, compared to Rs 2,13,776 crore borrowed year-on-year.

According to the tentative borrowing schedule, 26 states and Delhi were to sell debt worth Rs 2.22,550 crore so far but they have only raised 87% of that and that too by 23 states and Delhi .

The lower amount of market borrowing reflects lower state spending following the second wave of COVID-19, which led to both revenue generation and lower revenue collection.

Compared to last year, 14 states borrowed less or did not borrow at all. While Kerala, which paid 8.96% last April for a five-year loan, has borrowed up to 33% less this year, for Tamil Nadu it is down 21%.

On the contrary, Karnataka has not raised funds in the market at all. This is remarkable as last year the state had raised Rs 12,000 crore in the year to date (YTD).

But year-to-date borrowing has been higher for Uttar Pradesh (by 67%), West Bengal (17%), Telangana (14%) and Rajasthan (6%).

Tamil Nadu, Maharashtra, Rajasthan, Andhra Pradesh and Telangana have been the top five borrowing states so far this year, accounting for around 60% of total borrowing.

(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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