MUMBAI: After hitting a three-month high last week and ahead of the Rs 10,000-crore RBI purchase of state debt later this week, the weighted average cost of borrowing for the states has fallen by 20 bps over the past week to 6.75 per cent at the latest auctions.
The moderation in yields at Tuesday's auction of state government securities can be attributed to the RBI's scheduled secondary market purchase of state debt worth Rs 10,000 crore on June 17 under the G-Sap (government securities acquisition programme).
At last Tuesday's auctions, states' borrowing cost jumped to a three-month high of 6.95 per cent when six states raised Rs 11,500 crore from auction of state development loans. The weighted average cost of borrowing for across the states and tenures fell 20 bps over the past to 6.75 per cent at today's auctions, Care Ratings said in a note.
The states have been paying higher coupons to investors since the past year, when it had touched at 8.96 per cent and since them moving down but still remaining too high as against the G-secs.
Aggregate borrowings by states so far this fiscal are 29 per cent less than the borrowings in the same period of FY21 as only 18 states and one UT have so far raised Rs 1,04,350 crore as opposed to 22 states and one UT raising Rs 1,47,926 crore a year ago.
According to the tentative borrowing calendar, 26 states and one UT were to raise Rs 1,52,900 crore by June 15. However, only 68 per cent of this amount has been raised thus far by 18 states and one UT. At today's auction, nine states raised Rs 13,600 crore.
While Maharashtra accepted an additional amount of Rs 500 crore over the notified amount, the other states accepted only the notified amounts. Under the indicative calendar showed Assam, Chhattisgarh, Himachal, Jharkhand, MP, Odisha, Tripura and UP were to cumulatively raise Rs 29,800 crore, but states have not yet tapped the market.
The lower quantum and fewer number of state undertaking market borrowing so far in the current financial year could largely be ascribed to the lower expenditure undertaken by the states relative to their revenue.
Some states could also be availing of the financial accommodation being provided by RBI through short-term borrowing through special drawing facility and higher ways and means advances at the repo rate -- both are much cheaper than debt papers' cost than the funds raised through the SDL issue.
The ways and means advances of the states as of June 4 stood at Rs 11,235 crore was significantly higher than Rs 3,372 crore availed in the beginning of April.