States' borrowing cost decline marginally to 7.44 per cent

The borrowing cost for states continued to fall for the third week in a row, with the weighted average price falling to 7.44 per cent in the debt auction on Tuesday. The cost had remained at a two-year high throughout January sniffing at 7.8 per cent.

However, the overall cost has been falling since the interim Union Budget, which forecast a lower than anticipated borrowing and a fiscal deficit target of 5.8 per cent for this fiscal and 5.1 per cent for the next financial year.

The weighted average cut-off rate eased by 2 basis points to 7.44 per cent on Tuesday, with issuance trailing the indicated amount for the fifth consecutive week, Icra Rating said in a note.


Twelve states raised Rs 32,800 crore through State Government Securities (SGS) on February 27 and the amount is 27 per cent lower than the highest-ever weekly auction of Rs 45,200 crore indicated for this week in the fourth quarter auction calendar.

Both limited supply and the falling overall interest rates pulled down the weighted average cut-off to 7.44 per cent on Tuesday from 7.46 per cent last week despite a mild increase in the weighted average tenor to 14 years from 13 years, Aditi Nayar, the chief economist at Icra, said.

Accordingly, the spread between the cut-off of the 10-year state bonds and the 10-year G-Sec (Government Securities) yield declined to 37 basis points on Tuesday from 41 basis points last week, she added.

The states have so far drawn down 31.5 per cent more debt this fiscal at Rs 8.143 lakh crore as against Rs 6.193 lakh crore in the same period last fiscal.