States continue to tap cheap rates to borrow more than originally planned

Seven state governments had lined up to borrow Rs 9,000 crore, but ended up borrowing Rs 12,000 crore from the markets because of the cheap rates.

In a marked departure from the original plan, states took advantage of cheap market rates and borrowed extra. Seven state governments in line to borrow Rs 9,000 crore, ended up borrowing Rs 12,000 crore from the markets. The spread between the equivalent maturity government bonds and state development loans was 55-65 basis points (bps). This is a considerable spread contraction when compared with nearly 150-bps spread over government securities the states had to pay in the first auction of the financial year.  

On Tuesday, Andhra Pradesh, Gujarat, Kerala, Maharashtra, Rajasthan, Tamil Nadu, and West Bengal borrowed money. Except Andhra Pradesh and West Bengal, every other state borrowed extra. 

Gujarat raised Rs 1,500 crore instead of Rs 1,000 crore for a 10-year bond at 6.54 per cent. 

Kerala raised Rs 1,000 crore, against Rs 500 crore planned at 5.53 per cent for a five-year bond.  Maharashtra borrowed Rs 2,000 crore, against Rs 1,000 crore planned at 4.63 per cent for a three-year bond. 

Rajasthan raised a 10-year bond worth Rs 750 crore at 6.55 per cent, against the originally planned Rs 500 crore. Additionally, it raised a 30-year bond at 6.67 per cent for an equivalent amount, against its original plan of Rs 500 crore. 

Tamil Nadu also raised Rs 1,250 crore each in two slots, against Rs 1,000 crore each planned for its three-year and 35-year maturity at 4.63 per cent and 6.68 per cent, respectively. 

Separately, the indicative borrowing calendar for the second quarter showed states’ plan to borrow more than Rs 1.78 trillion, which could be acceptable in times of stress, but way higher than the market is used to in normal times.