States paying through the nose as debt pricing crosses 7% mark

For the first time this fiscal, the weighted average cost of states' market borrowings crossed the seven per cent mark at the auctions held on Monday with the average cut-off jumping by 12 bps to 7.02 per cent.

The massive spike in the cost is surprising as seven of the nine states did not participate in the auctions after the states got the final tranche of the GST compensation last week, Icra chief economist Aditi Nayar said.

The weighted average cut-off hardened by 12 bps to 7.02 per cent on Monday from 6.90 per cent in the last auction, mainly reflecting higher weighted average cut-off of the shorter tenor loans to 6.98 per cent from 6.64 per cent, she said.

At 7.02 per cent weighted average, the SDL (state developmental loan) cut-off is the highest this fiscal and is by 12 bps more than the previous auction. And this is despite the release of the final tranche of GST compensation loan of Rs 44,000 crore on October 28 within weeks of the disbursal of the second tranche of Rs 40,000 crore, the rating agency said.

At the auctions on Monday, 10 states and one UT raised Rs 13,700 crore, which is 37 per cent lower than the indicated amount of Rs 21,700 crore for this week and 14.8 per cent lower than the year-ago period, the agency said, adding the spread between the 10-year SDLs and G-sec remained unchanged at 61 bps, though.

The release of the balance GST compensation loan is expected to have eased the cash flows of the states, leading to nine states undertaking lower-than-indicated auctions on Monday.

In contrast, Maharashtra, Manipur, and Telangana borrowed Rs 1,600 crore more than what they had initially indicated. In addition, Goa borrowed Rs 100 crore, even though it had not indicated participation in the auction.

Cumulatively, 29 states and Union territories, except Odisha, have borrowed Rs 3.82 lakh crore so far this year, which is 14.8 per cent lower than the same period last year when they had borrowed Rs 4.49 lakh crore.

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