The yield on 10-year state development loans (SDL) eased sharply by 26 basis points at auction, showing the effect of Reserve Bank of India’s (RBI) steps to enhance liquidity for these bonds.
The weighted average cut-off for the 10-year SDLs eased by a sharper 26 bps to 6.63 per cent on October 13, 2020 over the previous weekly auction.
On October 9, 2020, the RBI unveiled various measures to provide liquidity, boost demand for government bonds and cool SDL spreads. RBI would also conduct Open Market Operations in SDLs. This subsequently led to a decline in the G-sec yields and SDL cut-offs.
Rating agency ICRA said state governments raised Rs 19,300 crore through state development loans (SDLs) in the auction held on October 13, 2020, 28.7 per cent higher than the initially indicated amount for this auction. It was 29.2 per cent higher than the year ago levels.
According to RBI’s indicative calendar for market borrowings, the state governments plan to raise about Rs 2.02 trillion in October-December 2020 period.
The combined market borrowings of 27 state governments and two Union Territories rose by 57 per cent to Rs 3.53 trillion in the first half of the current financial year (till September 2020 - H1FY21) over the same period in Fy20.
The lockdown and the resultant restrictions (to contain the spread of the Covid-19 pandemic) imposed on the conduct of business and commercial activity over the last six months has led to a sharp decline in the revenues of state governments, pressuring their finances. States have been increasingly resorting to market borrowings to meet their funding requirements, according to rating agency CARE Ratings.
During April-September 2019 (H1FY20), states had raised Rs 2.25 trillion.
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