States' Borrowing Cost Drops to 18-Month Low at 7.48%

Mumbai, Feb 6 (PTI) The borrowing cost of states declined to an 18-month low at 7.48 percent at the latest auction held on Tuesday.

Since the first auction of the fourth quarter held on January 2, the average cut off of state government bond auctions was sniffing at a shade less than 7.8 per cent, which was a two-year high.

At the latest auction held on Tuesday, 14 states raised Rs 26,700 crore which was 22 per cent lower than the indicated Rs 34,400 crore for this week in the fourth quarter auction calendar, according to data shared by rating agency Icra.

The lower supply was partly on account of the upward revision in tax devolution in the revised estimates for FY24 by the Centre in the interim Budget. This may reduce the borrowing requirements of some of the states in the remainder of the fourth quarter of this fiscal.

Reflecting the lower-than-indicated borrowing on Tuesday, the spread between the cut-off of the 10-year state debt and the 10-year G-Sec yield eased to 41 basis points from 49 basis points last week.

Further, the weighted average cut-off of the borrowing states fell sharply to 7.48 per cent from 7.65 per cent last week.