Andhra Pradesh will raise Rs 400 crore through the auction and Tamil Nadu Rs 200 crore. Through the first tranche of the state loan auction held on April 22, both the states mopped up over Rs 525 crore out of a total issue of Rs 3,440 crore.

Punjab was the first state to raise funds through a bond auction in January 1999. Andhra Pradesh and Tamil Nadu followed suit by deciding to go to the market on their own might. States earlier used to raise their market borrowings through issue of securities with a predetermined coupon. The RBI has given permission to state governments to raise 5-35 per cent of their market borrowings through auctions.

"The bidders should submit tenders on August 19. Results would be announced on August19 and payments by successful bidders will be on Friday, August 20," an RBI release said on Thursday.

According to money market sources, the state loan will have a smooth sailing as over Rs 700 crore inflow is expected to come into the system by August 15 through interest payment on 11.78 per cent 2003 paper, 11.19 per cent 2005 paper and redemption of 364-day treasury bills.

The market is expecting the cut-off yield of the 10-year loan between 11.83-11.85 per cent. Currently the 11.99 per cent 2009 paper is quoting at 11.63 per cent in the secondary market.

In the first tranche of the state loan for the fiscal 1999-2000, a ten-yera paper was sold at 12.25 per cent. The issue was oversubscribed mopping up over Rs 5,500 crore against the notified amount of Rs 3,440 crore.

"As the long term papers are in demand, most institutions and provident funds will lap up the latest issue. These entities have to maintain 15 per cent of their total investment in state loans which will see through the auction,"said a official from a primary dealership outfit.

During the first tranche of the state loan auction, Andhra Pradesh raised Rs 300 crore, Arunachal pradesh (Rs 3 crore), Assam (Rs 125 crore), Goa (Rs 15 crore), Gujarat (Rs 200 crore), Haryana (Rs 50 crore), Himachal Pradesh (Rs 40 crore), Jammu and Kashmir (Rs 32 crore), Karnataka (Rs 250 crore), kerala (Rs 150 crore) Madhya Pradesh (Rs 225 crore), Maharashtra (Rs 300 crore), Manipur (Rs 20 crore), Meghalaya (Rs 30 crore), Mizoram (Rs 10 crore), Nagaland (Rs 30 crore), Orissa (Rs 200 crore), Punjab (Rs 200 crore), Rajasthan (Rs 400 crore), Sikkim (Rs 20 crore), Tamil Nadu (Rs 225 crore), Tripura (Rs 20 crore), Uttar Pradesh (Rs 370 crore) and West Bengal (Rs 225 crore).