Cost of borrowing of states keeps on increasing

4 Oct 2022 , 08:37 AM

For the third week in a row, the average cost of market borrowing for states increased by 12 basis points on Monday to 7.77%. Over the last three weeks, there has been an overall increase in the cost of funds of 31 basis points (bps).

On Monday, 10 states raised Rs19,500 crore in the most recent debt auction, taking the full amount allotted for this week.

Before the yields started to rise three weeks ago, the rates had been declining for four consecutive weeks and had reached a low of 7.46%.

Similar to this, the weighted average cut-off for 10-year state bonds increased by 13 basis points from 7.67% last week to 7.79%. Thus, the difference between the weighted average 10-year state debt yield and the G-secs yield decreased from 38 to 32 basis points over the same time.

At the auction on Monday, Rs8,900 crore, or 46% of the total issue, was in longer tenors, while Rs6,600 crore, or 34%, was in the 10-year category. Maharashtra raised the remaining Rs4,000 crore, or 21%, as an eight-year debt.

Kerala raised Rs400 crore in a 25-year tenor at 7.7%, while Punjab borrowed Rs400 crore at 7.7% for a 20-year tenor, both of which were lower than the weighted average cut-off of 7.79% for a 10-year tenor.

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