States#39; borrowing cost begin to fall


With large borrowing states not coming to the market or drawing down less than indicated amounts, states are seeing the cost of their debt falling finally, with the weighted average interest rate declining by 18 basis points to 6.74 at the auction of state government securities on Monday.

Last week, the rate stood at 6.92 percent.

At Monday’s level, the rate difference between the G-Sec (Government Securities) and state development loans are still at a high of 77 bps. While the weighted average interest rate is 6.74 percent for the states, the Centre pays only 5.97 percent for 10-year bonds, according to an analysis by Icra Ratings Chief Economist Aditi Nayar.

During the auction on Monday, six states raised Rs 11,500 crore, which was lower than Rs 14,600 crore indicated. The amount is nearly 37 percent lower than the year-ago level and 21.2 percent less than what was indicated for this week.

So far, the issuance has trailed the indicated level in six of the eight weekly auctions held this fiscal.

The cumulative issuance stands at Rs 59,700 crore, down 44.3 percent compared to Rs 1,07,300 crore initially indicated for this period on an annualised basis, Nayar said.

The steep fall during the auction on Monday was due to the fact that Goa, Gujarat, Himachal Pradesh, Punjab, Telangana, Uttar Pradesh and West Bengal did not turn up despite indicating that they were planning to raise Rs 9,600 crore.

Bihar, Kerala and Sikkim, which had initially declined to participate in the auction, together raised Rs 4,000 crore. Maharashtra, Rajasthan and Tamil Nadu together borrowed Rs 2,500 crore.

With a decline in the weighted average tenor to 13 years on Monday from 19 years last week, the weighted average interest cost for the states declined to 6.74 percent from 6.92 percent.

During the auction, Rs 4,500 crore or 39 percent of the issuance was in the 10-year bucket and longer tenors of 11-25 year while Rs 2,500 crore or 22 percent  was in the 5-6 year bucket.

Accordingly, the spread between the 10-year weighted average state debt and the G-Secs yield stood at 77 bps, the same as on May 11.

With a considerable decline in the weighted average tenor to 13 years from 19 years last week, the weighted average cost moderated by 18 bps to 6.74 percent.