February 24, 2021 3:37:40 am
The average cut-off yield on state government bonds rose to an 11-month high of 7.19 per cent at the latest auction of Rs 23,806 crore market borrowings on Tuesday. The weighted average cost of borrowing for states across tenures was only 7.01 per cent on February 16.
Karnataka offered the maximum yield of 7.35 per cent on auction of Rs 1,000 crore securities. Analysts attributed the high cost of debt to fear among banks and other investors of the central government’s rising debt due to the Covid-19 pandemic.
With just one more month left for the pandemic-hit financial year to draw its curtains down, the states have cumulatively raised 84 per cent of their budgeted market borrowings at Rs 6.90 lakh crore so far, which is 33 per cent more than the borrowings in the year-ago period.
The yield on 10-year benchmark bonds was at 6.17 per cent on Tuesday. The rising yield has impacted stock markets in the last couple of days.
On Tuesday, 17 states raised Rs 23,806 crore at the auction of the state government securities, wherein Jharkhand accepted an additional Rs 400 crore and Punjab did not accept any amount in the auction.
According to Care Ratings, the reluctance of the Reserve Bank of India (RBI) to accept higher yields for government securities at the recent weekly auctions and the subsequent devolution of the securities on primary dealers has weakened sentiments further.
This was despite the massive surplus liquidity with banks at over Rs 5.5 lakh crore and the higher open market operations (OMOs) by RBI. The demand for government securities has been low due to the higher supply of these securities consequent to the higher borrowing by the central and state governments.
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