State market borrowings down 23.7% YoY in Q1FY23 on strong cash flows

Market borrowing by states and union territories (UT) using development loans declined 23.7 per cent year-on-year (YoY) basis to Rs 1,102 billion (Rs 1.1 trillion) in the first quarter ending June 2022 (Q1 of FY23).

According to rating agency Icra, states and UTs raised Rs 1.44 trillion in April-June 2021 (Q1 of FY22). The mop-up was 42 per cent lower than the indicated Rs 1.902 trillion in the borrowing calendar, reflecting a comfortable cash flow position.

Icra said a comfortable cash flow position of the state governments was due to a back-ended release of tax devolution to the states in FY2022. The changes in the borrowing permission for FY2023 granted by the central government to the states helped borrowing decisions as well.

Overall, the State Development Loans (SDLs) issuance trailed the indicated amount in eight out of the 13 weekly auctions held in Q1 FY2023. In the last auction of Q1 FY2023 (on June 28, 2022), nine states raised Rs 195 billion: that is nearly four per cent higher than the indicated amount for this week.

Andhra Pradesh (AP) and Telangana together borrowed an additional Rs 30 billion, and Assam, Haryana and Madhya Pradesh (MP) raised Rs. 70 billion through SDLs even though they had not indicated to participate in today’s weekly auction. In contrast, Goa, Kerala, Maharashtra, Manipur, Punjab and Uttar Pradesh did not participate on Tuesday, even though they had indicated in the Q1 FY2023 auction calendar.

The weighted average cut-off of SDLs rose by four basis points to 7.88 per cent today from 7.85 per cent in the last auction, amidst stable weighted average tenor at 15 years. Notably, Rajasthan and Tamil Nadu raised money at an attractive rate of 7.81 per cent a 25-year and 30-year SDL respectively compared to 11-20-year SDLs by other states in the range 7.92-7.96 per cent.