Giving more flexibility to cash-starved state governments to tide over their cash flow mismatches, the Reserve Bank of India (RBI) has decided to increase the number of days for which a state or union territory (UT) can be in overdraft continuously to 21 working days from the current stipulation of 14 working days.
The number of days for which a state or UT — which are strapped for cash in the wake of the coronavirus pandemic — can be in overdraft in a quarter has been increased to 50 working days from the current stipulation of 36 working days. “This arrangement will come into force with immediate effect and will remain valid till September 30, 2020,” the RBI said.
Meanwhile, the first bond auction by the state governments in the current financial year on Tuesday witnessed a sharp rise of up to 8.96 per cent in borrowing costs amid speculation that states and the Centre will have to borrow more to fund expenditure plans.
Results of the latest auctions State Development Loans of 10 state governments reveal that Kerala raised Rs 1,887 crore 15-year bonds at 8.96 per cent – 4.56 percentage points more than the RBI’s policy Repo rate of 4.40 per cent.
Rajasthan’s seven-year bond attracted a cut-off yield of 8.31 per cent. The yield on J&K’s Rs 800 crore bond was 8.15 per cent. A total amount of Rs 32,560 crore was raised compared to Rs 37,500 crore on offer. The spread charged by investors rose by 25-40 basis points up to 160 bps.
Of gross borrowings of Rs 7.8 lakh crore in FY21, the Centre has proposed to borrow Rs 4.88 lakh crore, or 62.56 per cent in the first half of the fiscal as against 62.25 per cent done in the previous fiscal. The Budget 2020-21 has pegged the Centre’s net market borrowing — including government securities, treasury bills and post office life insurance fund — at Rs 5.36 lakh crore.
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