States Borrowing Cost Slide Down to 7.90%

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States Borrowing Cost Slide Down to 7.90%

The state’s borrowing cost has been 8 per cent for the last week. But, with the change in economic conditions, it declined to 7.90 per cent giving relief to the state governments. 

The weighted average cost of borrowings for the states is low by six basis points. Thus getting down to 7.90%  at the auction of the State Development Loans (SDLs). 

It is the state debt auction, where nine states raised Rs. 18,700 crores from the market together. 

However, the fund raised is 22 per cent less than the Rs. 24,000 crores indicated for the week, as per the analysis of Icra, a rating agency. 

The weighted average cut-off eased to 7.90% from 7.96% in the former auction. Also, the spread between 10-year SDL and G-secs yields appreciated 43 bps from last week’s 39 bps. 

But, the benchmark ten-year G-secs yield declines to 7.37% from 7.43% on 19 July 2022. As a result, the weighted average cut-off for the ten-year SDLs slips to 7.80% compared to last week. 

In addition, the debt sale of states declined by 22% as seven states did not participate in the auctions. The seven states include Maharashtra, Kerala, Uttarakhand, Uttar Pradesh, Madhya Pradesh, Goa and Punjab. 

Despite being indicated to borrow Rs. 9,800 crores for the week, the states did not show up for the auction. 

The ease in yields is because of the fall in weighted average tenure to 14 years from the initial 15 years. 

The borrowing costs as per government are the interest and other costs incurred by the states in connection with the borrowing of funds. The cost of borrowing can be commitment charges on bank borrowings or short-term and long-term borrowings. 

Or the amortisation of discounts or premiums relating to borrowings and any ancillary costs incurred. 

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