States Borrow Record Rs 50,200 Crore From Market; Pricing Jumps 7 Bps To 7.45%

In the largest weekly auction ever, 17 states have mopped up Rs 50,200 crore in debt from the market, 81% higher than the Rs 27,500 crore indicated in the auction calendar for this Tuesday.

Reflecting the massive supply, the weighted average cut-off, which has been declining steadily since last month, has climbed by 7 Bps to 7.45% from 7.38 per cent last week.

After hitting a two-year high of 7.89 in the first weekly auction in January and remaining thereabout, the interest rates began to fall from January after the Centre released the states' dues from the tax devolution in the first week of February.

The cash-strapped states are borrowing more from the market as the fiscal year is about to close. Normally, the March quarter is the busiest for government spending.

The record high supply today was in spite of a mild decline in the weighted average tenor of state debt to 15 years from 16 years, ICRA Ratings chief economist Aditi Nayar said in a note.

As a result, the spread between the cut-off of the 10-year state bonds and the benchmark 10-year G-sec (7.18 GS 2033) yield also increased mildly to 36 Bps from 35 Bps last week, she said.

So far this fiscal, the states have drawn down 29.4% more than the year-ago period at Rs 9.28 lakh crore from Rs 7.17 lakh crore in the same period last fiscal.