Borrowing costs

State borrowing costs start to fall

With large borrowing states not coming to the market or taking less than the amounts indicated, the states are finally seeing the cost of their debt fall, with the weighted average interest rate falling by 18 basis points to 6.74 at the time of the sale. at the state securities auction on Monday. .

Last week, the rate was 6.92%.

At Monday’s level, the difference in rates between G-Secs (government securities) and government development loans is still at a high of 77 basis points. While the weighted average interest rate is 6.74% for states, the Center pays just 5.97% for 10-year bonds, according to analysis by Icra Ratings chief economist Aditi Nayar.

In Monday’s auction, six states raised Rs 11,500 crore, which was lower than the listed Rs 14,600 crore. The amount is almost 37% lower than a year ago and 21.2% lower than what was indicated for this week.

So far, issuance has lagged the indicated level in six of the eight weekly auctions held this fiscal year.

The cumulative issuance stands at Rs 59,700 crore, down 44.3% from the Rs 1,07,300 crore originally quoted for the period on an annualized basis, Nayar said.

The steep drop in Monday’s auction was due to Goa, Gujarat, Himachal Pradesh, Punjab, Telangana, Uttar Pradesh and West Bengal not showing up despite reporting that they planned to raise Rs 9,600 crore.

Bihar, Kerala and Sikkim, which initially declined to participate in the auction, together raised Rs 4,000 crore. Maharashtra, Rajasthan and Tamil Nadu together borrowed Rs 2,500 crore.

With the weighted average term declining to 13 years on Monday from 19 years last week, the weighted average interest cost for states fell to 6.74% from 6.92%.

During the auction, Rs 4,500 crore or 39% of the issue was in the 10-year tranche and the longer maturities of 11 to 25 years while Rs 2,500 crore or 22% was in the 10-year tranche. 5 to 6 years old.

As a result, the spread between the 10-year weighted average government debt and the G-Secs yield stood at 77 basis points, the same as on May 11.

With a considerable decline in the weighted average duration to 13 years from 19 years last week, the weighted average cost fell 18 basis points to 6.74%.