States’ borrowing cost slips by 6 bps to 7.46%; falls for fourth week in a row

Borrowing cost for the States fell for the fourth consecutive week as weighted average cut-off eased by 6 basis points (bps) to 7.46 per cent at the weekly auctions on Tuesday. 

Ten States raised Rs 10,500 crore at the latest auction of State Development Loans, which is 1.5 per cent higher than indicated in the borrowing calendar, a first in a couple of years. Since the outbreak of COVID, States have been borrowing much lower than indicated amount, thanks to higher grants from the Central government.

Last week, the Centre had released Rs 58,300 crore as tax devolution for July, up from Rs 47,600 crore each in the first quarter. Additionally, the Centre had approved Rs 31,500 crore of special assistance for capital expenditure to 10 States during that month. 

The weighted average cut-off has eased by 6 bps to 7.46 per cent from the past week despite the weighted average tenure increasing to 14 years from 13, and the spread between 10-year State debt and the 10-year G-Secs (Government Securities) yield declined to 37 bps from 39 bps last week, according to an analysis by ICRA Ratings. 

Reflecting the declining trend, the 10-year G-Secs yield declined to 7.08 per cent from 7.14 per cent last Tuesday. 

Besides, the weighted average cut-off of the 10-year State bonds eased to 7.45 per cent today from 7.53 per cent last week. Accordingly, the spread between the weighted average 10-year State debt and new 10-year G-Secs yield dipped to 37 bps from 39 bps. 

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