State finances seen improving with falling borrowing cost:CARE

Finances of states, which like the Centre borrow heavily from the market, are likely to improve going forward due to falling borrowing costs, which have come down by upto 28 bps since the beginning of the fiscal, says a report by CARE Ratings.
States' average borrowing cost rose from 8.07 per cent in April to 8.23 per cent in May, which further jumped to 8.31 per cent in July. But August and September saw a decline to 8.28 per cent and 8.20 per cent respectively, indicating a downward movement which may continue with the RBI lowering rates further in September, the report noted.

State development loans (SDLs) are debt issued by states to fund their fiscal deficit. Like the Centre, the states too run huge budgets deficits, which are financed mainly through market borrowings via SDLs.
But unlike Centre's G-secs and T-bills, SDLs do not have defined issuance calendars.
RBI policy rates tend to get translated faster in the G-sec market, including that for SDLs, relative to even the corporate debt market.
Total amount borrowed by states rose in May, July and September but declined in June and August, Care said, quoting RBI data.

Also, there has been a variation in the rates at which states borrowed, with a difference of 28 bps between the highest and lowest average cost of borrowing.

Between April and September, 27 states together raised Rs 1,08,185 crore, led by Maharashtra (12.9 per cent).
It is followed by Tamil Nadu (10.4 per cent), UP (10.2 per cent), West Bengal (7.9 per cent), Telangana (7.6 per cent), Haryana (7.2 per cent), Kerala (7.1 per cent), Andhra Pradesh (5.9 per cent), MP and Punjab (5.5 per cent each) Gujarat (5 per cent), Rajasthan (4.2 per cent), Bihar (1.8 per cent), Uttarakhand (1.6 per cent), J&K (1.3 per cent), Himachal Pradesh (1.2 per cent), Jharkhand and Assam (0.9 per cent each), Goa and Chhattisgarh (0.6 per cent each) and others (1.6 per cent).

Just three states -- Maharashtra, Tamil Nadu and UP -- accounted for more than 33 per cent in the total SDLs in the first half of the year.
Assam tops the list of lowest borrowing cost with just 8.06 per cent, followed by Arunachal and Himachal at 8.074 per cent and 8.15 per cent respectively, while Arunachal, Himachal, while Puducherry at 8.335 per cent have the highest borrowing cost, followed by Tripura and Chhattisgarh.
Except Gujarat and UP, all other states with low borrowing cost also have a share of under 2 per cent in the total borrowing.