States borrowing cost hits 1-month high of 6.80%

Mumbai: After falling marginally for two weeks, the cost of debt-funds for the states jumped again as the weighted average cost of borrowings rose by 37 bps to a one-month high of 6.80 per cent in the auction on Tuesday compared to the last week.

At the weekly auction of state development loans, six states raised just Rs 8,000 crore, which is 41 per cent lower than the indicated Rs 13,600 crore, according to an analysis by Icra Ratings, which said this is the sixth consecutive week of lower-than-indicated issuance.

Aditi Nayar, the chief economist at the rating agency, said the spread between the 10-year state debt and the G-secs eased to a 24 month-low of 45 bps from 51 bps last week, while the weighted average cost of their borrowings jumped by 37 bps to 6.80 per cent over the past week.

Seven of the 13 states that initially indicated their participation in the auction did not raise funds, even as Telangana borrowed Rs 500 crore more than indicated, she said.

According to another agency Care Ratings, the market borrowings by the states so far in FY22 are 18 per cent less than that in corresponding period of FY21. As many as 29 states/UTs have cumulatively raised (except Odisha) Rs 4,19,900 crore so far this fiscal, down 18.4 per cent on-year from Rs 5,14,600 crore.

According to Care, the weighted average cost of borrowings, across states and tenures, rose to 6.80 per cent, which is a one-month high while the weighted average yield of the 10-year bonds was stable at 6.84 per cent at last week's level.

The issuance has trailed the notified amount for the sixth consecutive week as the cash-flow situation of the large states seem to have benefitted from the release of the final GST compensation end-October

and the release of a higher monthly tax devolution to the states in November, Icra said, adding of the total funds today, Rs 3,500 crore or 44 per cent were raised in the shorter tenor of 5-9 years, Rs 3,000 crore or 38 per cent in longer tenors and a

just Rs 1,500 crore or 19 per cent were in the 10-year

bucket.