At 7.43%, states pay highest interest rate on debt in last auction of FY22

States paid through the nose in the last auction of the outgoing financial year for their market borrowings, paying the highest interest rate at 7.34% on Tuesday, even though they lifted up to 21.7% lower at Rs 7.02 lakh crore than originally expected.

In the last FY22 auction, 15 states raised Rs 30,853 crore, 24% more than notified, ratings agencies Icra and Care said, in part because the Gujarat has raised an additional Rs 500 crore in the 10-year guarantee. But despite this, total borrowing is 21.7% lower than originally expected, the agencies said.

According to Icra Ratings, the indicative borrowing schedule indicated that 28 states and two union territories were to raise Rs 8.96 lakh crore.

However, 27 states and two UTs raised only Rs 7.02 lakh crore at the end of the year, 21.7% less than what was planned for the current fiscal year, Icra said.

The cost of borrowing for states hit a new high in today’s auction after hitting a three-week low in last week’s auction, with the weighted average cost across states and mandates hitting the high for the year at 7.34%. up 18 basis points over the past week to 7.16%.
That means the cost of borrowing for them has risen 78 basis points since the start of the current fiscal year, Care Ratings said in a note.

For 10-year bonds, the weighted average cost of borrowing rose 8 basis points to 7.33% from 7.25% last week, following the high yield of the benchmark 10-year G-secs at 6.85%, the agency said, adding the weighted average. 10-year yields in all states have risen 58 basis points since April 2021.
The agency had blamed rising domestic inflation expectations for putting upward pressure on yields.

The sharp rise in the 10-year weighted average cost of borrowing caused the spread between 10-year government debt and G-secs to widen to 48 basis points from 38 basis points last week, it said. -he adds.
In the outgoing fiscal year, 27 states and two union territories borrowed less than they borrowed in fiscal year 21 due to improved revenue and calibrated expenditure situations. .

The top five borrowing states were Tamil Nadu, Maharashtra, West Bengal, Uttar Pradesh and Karnataka, which accounted for about 49% of total borrowing in FY22.

Tamil Nadu, Bengal and UP recorded a revenue shortfall in the first 10 months of the financial year, while Maharashtra and Karnataka recorded a revenue surplus indicating their comfortable financial position.
In FY22, borrowings from Bihar, Haryana, Manipur, Sikkim, Telangana and Bengal were higher than in the previous FY, as Telangana, Haryana, Bihar and Bengal recorded a revenue shortfall in April-January, while Sikkim borrowed more despite a revenue surplus.
Odisha did not raise any money in the market at all in FY22, while it raised Rs 3,000 crore in the last fiscal year. originally listed for this week.
Tamil Nadu, Kerala, UP and Bengal launched higher-than-expected auctions and accounted for nearly two-thirds of total issues on Tuesday.
Gross fundraising of Rs 2,35,300 crore in the fourth quarter was 37.7% lower than the Rs 3,24,000 crore shown in this auction schedule, benefiting from increased transfers from the Center in the first two months of the quarter.
This included improved fiscal decentralization in January at Rs 95,100 crore and in February at Rs 1.47,300 crore and GST compensation of Rs 18,000 crore and ad hoc settlement of Rs 35,000 crore of integrated GST in January, facilitating state cash flows. in the fourth quarter

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