States borrowing cost slips to 7.67% amid lower-than-indicated issuance

After hitting a near three-year high last week, the average cost on states' borrowings has eased a tad this week's auction by 4 bps to 7.67 per cent amid lower-than-indicated issuance.

According to Icra Ratings, the weighted average cut-off or pricing of bonds eased by 4 bps to 7.67 per cent even as the supply eased a tad after rising for four weeks when states borrowed more than the estimated amount.

At the auction held on Tuesday, 11 states raised Rs 11,600 crore by selling state government securities (SGS), which trailed by over 22 per cent from the amount indicated for this week in the Q3 auction calendar at Rs 15,000 crore.

As a result, the weighted average cut-off or interest payable eased by 4 bps 7.67 per cent from 7.71 per cent last week, which was a 34-month high. Accordingly, the weighted average tenor also declined to 13 years from 14.

Moreover, the spread between the cut-off of the 10-year SGS and the 10-year G-secs (7.18 GS 2033) yield also eased to 40 bps from 41 bps last week, according to Aditi Nayar, the chief economist at the agency.

So far this fiscal, the states have cumulatively raised Rs 5,00,500 crore from the markets, which is 27.9 per cent more than what they had raised in the same period last fiscal, when it stood at Rs 3,91,300 crore, according to Icra.

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