Twelve Indian states and union territories came to the market on Monday and most paid around 8 percent to borrow. The Reserve Bank of India said 27,083.882 crore rupees was accepted of the 29,050 crore rupees of state government securities offered, at cut off yields ranging from 7.61 percent on a four year Haryana loan to 8.1476 percent on Haryana’s reissued 7.69 percent security maturing in 2048.
The long end set the tone. Tamil Nadu was the largest borrower, accepting 9,500 crore rupees across four reissues maturing from 2041 to 2056 at yields between 8.0393 and 8.1067 percent. Uttar Pradesh accepted 3,500 crore rupees, including 2,000 crore rupees of 20 year paper at 8.09 percent, and Jammu and Kashmir paid 8.09 percent for 23 year money. Gujarat borrowed shorter and cheaper, at 7.82 percent for 10 years and 7.97 percent for 13 years, and Kerala’s reissued 2032 security cleared at a price of 100.50, a yield of 7.8109 percent.
Two borrowers did not take the market’s price in full. Bihar accepted only 1,533.882 crore rupees of the 2,000 crore rupees it sought in an 18 year security at 8.10 percent, while taking its full 2,000 crore rupee reissue maturing in 2051 at 8.0816 percent. Chhattisgarh accepted nothing at all: both of its reissues, 900 crore rupees of the 7.68 percent security maturing in 2036 and 600 crore rupees of the 7.64 percent security maturing in 2042, went unaccepted.
State development loans are the marginal funding channel for India’s state governments, and their pricing now sits roughly 260 basis points above the Reserve Bank’s 5.50 percent repo rate at the long end. A full rejection, as in Chhattisgarh’s case, is the auction mechanism working as a price signal: the state judged the bids too expensive and will have to return to the market, borrow shorter, or spend less.