States, Union Territories to borrow up to Rs 2.73 trillion in Q1FY26

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States and Union Territories plan to borrow up to Rs 2.73 trillion through state government securities in the first quarter of the current financial year, the Reserve Bank of India said in a release on Tuesday.

 

Bond market participants said that the borrowing amount was along expected lines.

 

“The borrowing amount is along expected lines,” said a dealer at a state-owned bank. “We saw heavy supply in the last quarter, which is usually the case,” he added.

 

Heavy supply in the last quarter of the previous financial year, coupled with weak investor demand, pushed the yields on state bonds higher during the quarter.

 

“There will be demand from public sector banks, insurance, and provident funds, and the supply should get absorbed,” said the treasury head at a private bank.

 

The yield spread between the benchmark 10-year government bond and 10-year state bonds widened up to 47–48 basis points. Market participants said there was heavy supply and a lack of demand because of factors like outflows from Life Insurance Corporation due to maturing policies and banks not buying aggressively owing to liquidity constraints.

 

In the last quarter of the financial year 2023-24, a similar surge in the supply of state bonds was absorbed due to strong investor demand.