States’ debt cost continues to fall as WMA draw-down spikes again

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September 21, 2021 8:23 PM

The cost of borrowing for states continues to decline, with the latest auction held on Tuesday witnessing a 7 bps fall in weighted average pricing of their debt to a three-week low of 6.80%

cost of borrowing for statesAccording to Icra Rating and Care Ratings, the weighted average cut-off of state development loans declined by 7 bps to 6.80 per cent, led by a 9 bps decline in the same to 6.78 per cent from 6.87 per cent last week for the 10-year instrument, with easing across tenors.

The cost of borrowing for states continues to decline, with the latest auction held on Tuesday witnessing a 7 basis points fall in weighted average pricing of their debt to a three-week low of 6.80 per cent, as the draw-down from the ways and means advances (WMA) began to jump again.

According to Icra Rating and Care Ratings, the weighted average cut-off of state development loans declined by 7 bps to 6.80 per cent, led by a 9 bps decline in the same to 6.78 per cent from 6.87 per cent last week for the 10-year instrument, with easing across tenors.

This has the spread between the 10-year state debt and the G-sec easing to 65 bps on Tuesday from 70 bps last week, the lowest since the first week of April.

A basis point is 100th of a per cent.

At the auctions held on Tuesday, eight states raised Rs 8,910 crore and all of them accepted the notified amount.

The market borrowings by the states so far in FY22 stood at 11 per cent less than that in the comparable period of FY21, as 25 states and Delhi have cumulatively raised Rs 2.92 lakh crore so far against Rs 3.27 lakh crore a year ago by 27 states and two Union territories.

At this level, the borrowings so far are 12 per cent lower than the borrowings as per the indicative auction calendar for this period.

According to the borrowing calendar, Karnataka, Odisha, and Tripura were to raise Rs 9,600 crore by now but they haven’t yet tapped the market for funds.

Of the five states that were to participate in today’s auction as mentioned in the indicative calendar, only three (Maharashtra, Nagaland and Tamil Nadu) took part; while the five states that raised funds on Tuesday were not part of the indicative borrowing calendar.

The debt raising is slow this year as many states are meeting their revenue shortfalls by tapping the financial accommodation being provided by the RBI by way of short-term borrowing through SDF (special drawing facility) and WMA (ways and means advances) instead of the debt market.

In the three months ended July 9, the WMA borrowings were notably higher by 35 per cent at Rs 92,000 crore. But, this began to moderate from mid-July and through August, which can be attributed to the GST compensation shortfall of Rs 75,000 crore being paid by the Centre as well as the easing of the lockdowns across states.

However, this jumped again in the first two weeks of September with cumulative borrowings of Rs 22,810 crore.

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