Economy News

States’ cost of borrowing remains high at 7.83% – Mintpaisa

The market cost of borrowing for states remained high, with the average yield reaching 7.83% at auctions held on Tuesday, a measly 1 basis point lower than the last government securities auction. Seven states raised Rs 10,700 crore at Tuesday’s State Securities Auction (SGS), roughly half of the Rs 20,800 crore listed for the week.

The weighted average threshold slipped to 7.83% from 7.84% last week, despite the increase in the weighted average duration to 15 years from 13, Icra said in a note.

However, the yield on 10-year G-secs fell 4 basis points (bps) to 7.40%, while the weighted average threshold on 10-year government bonds slipped only 1 bp to 7.82%. As a result, the spread between the weighted average 10-year government bond cut-off and the 10-year G-sec yield fell from 39 basis points to 42 basis points.

The reason for the massive drop in levy is that big borrowers like Haryana, Karnataka, Maharashtra, Tamil Nadu, Uttar Pradesh and Sikkim did not participate in the auction even though they indicated borrowing combined of Rs 10,200 crore for this week. Additionally, Andhra and Rajasthan borrowed Rs 1,100 crore less than indicated.

In contrast, Madhya Pradesh raised Rs 1,000 crore more than indicated, similarly Punjab cut Rs 200 crore more than indicated in the quarterly auction schedule.

Kerala issued 23-year bonds at a threshold of 7.80%, below the 7.82% threshold for Assam and Rajasthan’s 10-year bond.

Overall, the cumulative levy so far for this financial year stood at Rs 3.6 lakh crore by 24 states, down 6% from the prior year period.

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