The financial crisis staring West Bengal government has spooked the bond markets so badly that it has been forced to offer a far higher rate of interest for its latest loan of R2,000 crore. The pricing difference of 14 basis points shows the scale of the debt crisis the state will present for the new government that will come to power at the end of this week.
Since the elections have been announced the state has borrowed R5,173 crore from the banks in just 45 days in three tranches. It is more than the combined loan raised by all other states in the same period.
The state just has no cash for even day to day operations, which is why it is unable to wait more than a day to raise the loans. RBI data shows, West Bengal has approached the markets independent of other states from April onwards, instead of waiting to bunch its requirements with them. The bunching helps increase the appetite of the investing banks as the sum gets bigger and allows for finer spread.
Usually state government development loans, which are only of ten-year tenure are priced about 40 to 45 basis points above the government of India benchmark paper.