Market borrowings by states decline 5.6% to Rs 3.6 trillion in FY18

Higher cost of borrowing kills appetite, average yield on State Development loans rises by 6 bps

Market borrowings by the state government fell by 5.6 per cent in 2017-18 to Rs 3.61 trillion compared with Rs 3.82 trillion in FY17 as the cost of borrowing shot up.

Maharashtra borrowed the most at Rs 425 billion which was six per cent higher than what it borrowed in FY17. Next to Maharashtra was Uttar Pradesh (Rs 386 billion) and Tamil Nadu (Rs 360 billion). A report by CARE Ratings says the cost of borrowings witnessed in FY18 as against the previous fiscal. The average yield on State Development Loans (SDL) stood at 7.6 per cent in FY18, six basis points higher than that of FY17.

In March 2018, 25 states raised funds by way of SDLs amounting to Rs 412.6 billion. The amount was eight per cent lower than the previous month. Average borrowing cost for states in March 2018 was 8.15 per cent, four basis points or 0.04 per cent less than the preceding month.

For the fiscal year 2017-18, the central government borrowings stood at Rs 5.88 trillion, Rs 570 billion or nine per cent lower than the borrowings of FY17. The borrowing in FY18,  however, was higher  than that during the fiscal years FY12-FY16. The  cost of market borrowing for the central government moderated further in FY18. The central government’s market borrowing costs has seen a sustained decline since FY14.

In FY18, the average borrowing cost for the central government was at a seven-year low of  7.08 per cent and was nine basis points lower than the average yield of auctions in FY17. 

Despite the overall moderation in yields in FY18, the increase in yields in December 2017, January 2018 and February 2018 saw the Reserve Bank of India (RBI) cancelling scheduled auctions of the government securities.  Cumulatively, the government cancelled auctions to the tune of Rs 300 billion in these months.