India Business Journal - State governments’ bond issues see big surge, account for 55% of G-Sec volume

ECONOMY

State governments’ bond issues see big surge, account for 55% of G-Sec volume

IBJ Bureau
Jul 12, 2024

An estimated redemption of State government securities (SGS) of Rs 21 lakh crore during FY26-30 and Rs 18 lakh crore during FY31-35 will likely bloat gross bond issues over the next decade, rating agency ICRA has said.

“Of the estimated stock of SGS outstanding as on March 31, 2024, Rs 20.7 lakh crore is expected to be redeemed during FY26-30 and another Rs 18 lakh crore in FY31-35, suggesting that the gross SGS issuance during the next 10 years will remain elevated,” ICRA has said in a note.

This increase in redemption of SGS during FY26-30 and FY31-35 is mainly led by large States such as Uttar Pradesh, Tamil Nadu, Maharashtra, Karnataka and Gujarat.

This is equivalent to nearly 55 per cent of the estimated outstanding stock of Government of India securities (G-Secs) of Rs 103.6 lakh crore as on March 31, 2024.

The stock of SGS, the chief source of funding the fiscal deficit of State governments, more than doubled to Rs 56.5 lakh crore as on March 31, 2024, from Rs 27.8 lakh crore as on March 31, 2019.

During FY24, the stock of SGS grew at a CAGR of 15.3 per cent, surpassing the 12.5 per cent CAGR of the G-Secs.

Over the years, with increase in share of longer-dated SGS (more than 10 years), the weighted average maturity (WAM) of the stock of SGS has risen steadily to 8.5 years by the end of March 2024 from 6.7 years by the end of March 2019, ICRA adds.