Mumbai Returns on state government loans fell in the auction held on Tuesday following the Reserve Bank of India’s decision to keep the policy and stance unchanged.
The yield on the 15-year paper for Karnataka and Punjab fell to 7.12% from 7.31% on January 11, 2022. Tamil Nadu auctioned the 25 year paper at 7.13%, as against 7.22% in January 2022.
“States have also benefited from the liberal stance of RBI announced in its most recent policy. Since the policy, the 10-year government security has declined by 14 bps, while CCIL’s weighted average return on SDL has declined by 11 bps. Madan Sabnavis, Chief Economist, Bank of Baroda said, 10Y G-sec and State Development Loan (SDL) yield has been capped by 22bps.
States borrowed in Tuesday’s auction 12,100 crore from the market as compared to Took a loan of 14,200 crores last week. although it was less than 19400 crores which was initially indicated for this week in the auction calendar of the fourth quarter of the fiscal year 2022.
about 71% of the total issue or 8600 crores were raised in the long run, 3000 crores or 25% of the total issue in 10 years bucket and balance 500 crores or 4% was raised through 7 year State Development Loans.
Central government auction last week 24000 crores were canceled and this also contributed to the fall in the yield of SDL. As per the issuance calendar, the last government securities auction for FY22 is scheduled to be held on February 25, 2022.
That said yields are expected to remain under pressure this year as the government is expected to borrow heavily 14.95 trillion, higher than expected 12.5-13 trillion. Net borrowings after redemption are estimated 11.59 trillion. Further, the net borrowing to the states is pegged at 3.5% of the GSDP, which adds up to the total borrowing numbers.
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