RBI’s Benchmark Issuance Strategy likely to boost transparency, liquidity in SDL market

Mumbai: The RBI’s Benchmark Issuance Strategy (BIS) for select states is expected to improve transparency and liquidity in the State Development Loan (SDL) market, say experts.

According to market experts, the impact on borrowing costs and yield spreads is likely to be gradual amid the continued heavy supply of state bonds.

The central bank has decided to roll out the strategy on a pilot basis from FY27, under which states will issue securities in specific benchmark tenor buckets based on a pre-announced borrowing calendar.

The framework is aimed at creating larger, more liquid benchmark bonds, improving price discovery and providing investors with better visibility into supply in the state bond market.

Market participants said the strategy would benefit both issuers and investors by bringing greater discipline and predictability to state borrowing programmes.

Mataprasad Pandey, vice-president at Arete Capital, said the benchmark issuance strategy enhances transparency and liquidity in the market while enabling states to manage their debt more efficiently, which could also support demand for their securities over time.

Experts also highlighted that the move represents a structural step towards aligning state borrowings with the broader government securities framework.

Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap LLP, said standardising issuances across key tenor buckets such as 5-year, 10-year and 15-year maturities would help build reliable benchmark securities, improve secondary market liquidity and strengthen the development of a proper yield curve for state bonds.

However, experts cautioned that the immediate movement in yields will continue to be driven by supply conditions, with states increasingly front-loading borrowings and tapping longer tenors.

They noted that the current widening of SDL spreads, now in the range of 0.65-0.75 per cent over comparable government securities, reflects elevated issuance volumes and rising duration risk rather than structural inefficiencies in the market.

While the Benchmark Issuance Strategy is expected to improve market efficiency and transparency over the medium term, analysts said sustained compression in spreads would depend on stronger demand conditions, broader investor participation and deeper market-making in the secondary market, suggesting that SDL yields may remain elevated in the near term despite the reform.