States, UTs may borrow ₹2.87 trn via govt securities in Q2, says RBI

States and Union Territories plan to borrow up to ₹2.87 trillion through state government securities in the second quarter of the current financial year, the Reserve Bank of India said in a release on Friday. Further, the central bank said the government plans to borrow ₹2.69 trillion via treasury bills.

 

Bond market participants said that the borrowing amount for both state government securities and T-bills was tad lower than the expected. 

 

“Usually, states borrow less than the indicative amount in the first half of the current financial year. We are expecting that they may end up borrowing around ₹2.50 trillion,” said a dealer with a primary dealership.

 

State government securities will continue to command demand from public sector banks, life insurers and pension funds, said market participants.

 

Aditi Nayar, chief economist, ICRA, said, “In aggregate, the states have indicated a substantial borrowing of ₹2.86 trillion in Q2FY26, 20 per cent higher on a Y-o-Y basis. Additional instalment(s) of tax devolution and the pace of disbursement of capex loans can affect the actual borrowing of the states’ relative to the planned issuances." 

 

"Further, large borrowings indicated by a couple of states may turn out to be optimistic. ICRA continues to expect the state governments to raise ₹11.9-12.5 trillion through SGS in FY26," she added.

 

Separately, the Centre plans to borrow ₹1.26 trillion via 91-day T-bills, ₹78,000 crore via 182-day T-bills, and ₹65,000 crore via 364-day T-bills, the RBI said. “With an ample amount of liquidity in the system, yields on T-bills are expected to trend downwards,” said a dealer with a private bank.

 

“In consultation with the government, we will have the flexibility to modify the notified amount and timing for auction of Treasury Bills depending upon the requirements of the government, evolving market conditions and other relevant factors, after giving due notice to the market. Thus, the calendar is subject to change, if circumstances so warrant, including for reasons such as intervening holidays,” the press release said.