Combined market borrowings of 27 state govts, 2 UTs rise 57% in H1FY21

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 restrictions (to contain spread of Covid-19) imposed on the conduct of business and commercial activity over the last 6 months has led to a sharp decline in the revenues of the state governments, putting their finances under pressure. 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.

According to the borrowings calendar, states were to borrow a total of Rs. 3.05 trillion in H1FY21. Their borrowings, however, during the period was 16 per cent or Rs 48,115 crore higher. The borrowing calendar for H2FY21 is to be announced in the coming days, CARE said.

 

Reflecting the surge in state government development loans (SDLs), the cost of borrowing also inched up, especially in September 2020. However, the yields in September were less than those prevailing in April as the RBI infused huge amounts of liquidity into the system during April-September 2020.  

The weighted average yield of state government dated securities (across states and tenures) auctioned on September 29 at 6.57 per cent was 12 basis points higher than week ago and 24 bps higher than that in mid-September 2020.

The spread between the 10 year SDLs and government bonds has widened to a 4 month high of 86 bps. Nearly 40 per cent of the state borrowings is through the issue of SDLs carrying a tenure of 10 years, CARE added. The weighted average yield on 10 year state government bonds stood at 7.63 per cent in April 2020 as against 6.87 per cent in September 2020. In August, yields were in the 6.45-6.47 per cent band.