After the frenetic debt raising in the first quarter, states are borrowing less with the latest round on Tuesday seeing them mop up 40.6 per cent less than the indicated amount and 30.2 per cent less than notified, according to a report by rating agency ICRA.
The main reasons for this are - Rejection by some large states, and the high spread between the 10-year state development loans (SDLs) and the government securities (g-secs) that hovered around 60 basis points (bps) for the third consecutive week, said ICRA Chief Economist Aditi Nayar.
Due to the revenue fall because of the coronavirus-induced lockdown, the states were forced to borrow more at a high cost, which in the first round of SDL auctions on April 7 had touched 8.96 per cent for a 15-year money for Kerala, the report said.
Moreover, states' borrowings, known as state development loans or SDLs, raised on July 28 this year were 17.3 per cent lower than the amount raised on July 30, 2019, it said. The rating agency added that however, so far, the states have borrowed Rs 2,19,700 crore, which is as much as 66.3 per cent more than the amount they raised during the same period last year.
The report said nine major states on Tuesday raised Rs 11,100 crore through SDLs. This was 40.6 per cent lower than the amount indicated and as much as 30.2 per cent lower than what was notified for the week, it added. This is primarily because some states rejected the bids they received, either fully or partially, the agency said.
While Gujarat (Rs 1,500 crore) and Tamil Nadu (Rs 2,500 crore) rejected the entire SDLs offered for sale in this auction, Rajasthan accepted Rs 2,000 crore in shorter tenors of 3, 4 and 7 years, but rejected all bids for the Rs 500-crore 10-year loans, according to the data collated by the agency.
It said the maximum amount of Rs 3,600 crore was raised in 10-year loans, followed by Rs 2,500 crore for 3 years. Weighted average cut off for the 10-year loan was 6.44 per cent which was only 5 bps lower than the cut-offs for 13-year and 30-year papers at 6.49 per cent each of the gilts auctioned on the same day, the agency added.
Between April 1 and July 27, 26 states and one UT raised Rs 2,19,700 crore, which is as much as 66.3 per cent higher than the amount raised during the same period last year. And, nearly two-thirds of the increase has been led by Tamil Nadu, Maharashtra, Karnataka and Rajasthan, according to Nayar.
Meanwhile, the spread between the weighted average 10-year SDLs and 10-year g-sec yield remained below 60 bps for the third consecutive week and is still very high, the agency said.