States, UTs borrow Rs 12,800 cr at auction, half of planned target

Higher tax devolution in October eased funding pressures for states, leading to lower-than-expected borrowing and a slight dip in yields on state government securities

Seven state governments and one Union Territory raised Rs 12,800 crore through state government securities (SGS) on Tuesday, less than half the amount projected in the Q3 FY26 auction calendar for the week. The lower-than-expected borrowing could be attributed to the release of two tranches of tax devolution in October, which likely eased funding requirements for some states.

 

“The lower-than-indicated issuance this week could possibly be on account of the release of two tranches of tax devolution in October 2025, which may have eased borrowing requirements of some states,” said Aditi Nayar, Chief Economist, ICRA.

 

The amount raised was higher than the Rs 9,410 crore mobilised in the previous week but lower than the Rs 29,100 crore indicated in the borrowing calendar.

 

 

Weighted average yield dips slightly; tenor lengthens

 

The weighted average cut-off yield on SGS declined slightly to 7.17 per cent from 7.18 per cent last Tuesday, even as the average tenor of issuances lengthened to 16 years from 11 years over the same period.

 

Notably, about 40 per cent of total SGS issuance so far in October has been in shorter tenors, up from 12–30 per cent in the previous six months, with several states skipping 10-year papers altogether.

 

No state auctioned 10-year securities this week or last week. The last 10-year issuance took place on September 23, when yields ranged between 7.26 and 7.32 per cent.

 

This week, only Gujarat auctioned nine-year paper at 7.07 per cent.

 

Spread between SDLs and G-Secs narrows, says Bank of Baroda

 

“In Q2FY26, states had indicated plans to borrow Rs 2.87 trillion and eventually raised Rs 3 trillion,” said Madan Sabnavis, Chief Economist, Bank of Baroda.

 

“No state auctioned 10-year paper this week or last week. States last opted for auctioning 10-year paper on September 23, and yields that week had ranged between 7.26 and 7.32 per cent. This week, only Gujarat auctioned nine-year paper at 7.07 per cent. Since September 23, in the G-sec market, the 10-year yield has seen some inching up, settling at 6.51 per cent today, unchanged from last week. The spread between SDLs and 10-year G-secs narrowed to 79–85 basis points as of September 23, versus 106–112 basis points seen during early September 2025,” he added.