Average cost for state debt plunges 27 bps to 6.72%

The weighted average cost of borrowing across states has plunged 27 bps to 6.72 per cent from the previous week, but the weighted average yield of the most-traded 10-year debt was unchanged at 6.97 per cent.

The 10-year-state loan yields are ruling at the highest level since mid-August and have been tracing the rise in G-Sec yields since late September, which have inched up on concerns over the rise in global energy prices and the uptick in US treasury yields, Care Rating chief economist Madan Sabnavis has said in a note.

The average loan pricing is down this time around to 6.72 per cent because the average tenor is down to 9 years at today's auctions, Icra Rating said in a review note.

Similarly, the spread between the 10-year state loans auctioned on Tuesday, when three states have raised just Rs 5,000 crore, which is down 15 per cent from the year-ago level, and the primary market yield of the 10-year G-Sec was 64 bps, 4 bps lower than at the start of the month, the Care Rating report said.

The market borrowings by the states so far this fiscal is 15 per cent less than in the corresponding period of FY21, as only 27 states and two UTs have raised Rs 3.48 lakh crore against Rs 4.10 lakh crore borrowed by 28 states and two UTs in the same period last fiscal.

The borrowings so far are also 11 per cent lower than indicated in the auction calendar for this period.

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The states are taking in less and less long term debt as many of them have better revenue position relative to the expenditure being undertaken by them on one hand and on the other, many are tapping into the financial accommodation being provided by the RBI by way of special drawing facility and higher ways and means advances.