States, UTs to borrow ₹2.81 trillion via bonds in Q3 FY26, says RBI

States and Union Territories will borrow Rs 2.81 trillion in Q3 FY26 through securities, with borrowing patterns shaped by GST changes, redemptions and tax devolution

States and Union Territories plan to borrow up to ₹2.81 trillion through state government securities in the third quarter of the current financial year, the Reserve Bank of India said in a release on Friday.

 

The borrowing amount was along expected lines, said market participants.

 

“We had estimated state's borrowing in the range of ₹2.8-3.1 trillion in Q3 looking at the H1 borrowing by the states. And, the number that has come out is exactly in line with our estimates,” said Sakshi Gupta, principal economist at HDFC Bank.

 

States borrowed ₹5 trillion through state bonds in the first half of FY26, with Q2 issuances marginally exceeding the indicative borrowing calendar, the first such instance in seven quarters. Anticipating the fiscal impact of GST rate rationalisation beginning in Q3, the central government front-loaded ₹1 trillion of tax devolution to states on October 1, in addition to the regular monthly transfer.

 

“The gross SGS issuance of ₹2.8 trillion indicated by the states for Q3 FY2026 is flattish relative to the actual issuance in Q2 FY2026, while being 11 per cent higher on a Y-o-Y basis. Interestingly, the assessed net amount of ₹1.8 trillion is sequentially lower than the previous quarter, even as it represents a substantial Y-o-Y expansion of 24 per cent. This arises from the estimated pickup in redemptions to around ₹1 trillion in Q3 FY2026 from ₹0.7 trillion in the previous quarter,” said Aditi Nayar, chief economist, ICRA.

 

The early communication of the additional tranche of tax devolution to the states may have contributed to a lower borrowing figure, she said. ICRA had expected it to be around ₹3.3 trillion, according to Nayar.

 

The weighted average maturity of State Development Loans (SDLs) has been rising over the past few years and has extended further in FY26. From around 11 years during FY18 to FY20, the average maturity increased to 13.3 years during FY21 to FY25. In the first half of FY26, it rose further to 16.6 years, up from 14.3 years in FY25.