Weighted average cost of State govt borrowings eased to 7.52% in FY24
Weighted average cost of State Government Securities (SGS) eased by 20 basis points to 7.52 per cent in FY24, despite 33 per cent surge in issuance, according to ICRA.
Twentysix state governments and 2 Union Territories (UTs) issued gross SGS’ of ₹10.1 lakh crore in FY 2024, 33 per cent higher than the ₹7.6 lakh crore issued in FY2023, the agency said in a report.
20 BPS DIP
Despite this, the weighted average cutoff (WAC) of the SGS dipped by about 20 basis points (bps) to 7.52 per cent in FY 2024, from 7.71 per cent in FY2023, led by a relatively sharper decline in rates for longer tenor papers.
Notably, the WAC of Telangana SGS slipped by 30 bps to 7.47 per cent (lowest WAC along with Kerala and TN at 7.47 per cent), per an analysis by Aditi Nayar, Chief Economist, Head – Research & Outreach; Neetika Shridhar, Assistant VicePresident; and Jaspreet Kaur, Senior Analyst, ICRA.
The WAC of Karnataka’s SGS issuance eased by a mild by 2 bps to 7.60 per cent in FY2024 from FY 2023, they said.
Reflecting the relatively attractive longterm rates and the highly frontended redemption profile of the stock of SGS’ (as on March 31, 2023), the share of longer tenor paper increased to 63 per cent in FY 2024 from 55 per cent in FY 2023.
Although the weighted average maturity (WAM) of the SGS issued in FY 2024 was unchanged at 14 years compared to FY 2023, there were wide statewise variations, ICRA economic research team said.
Amongst the sample states (with gross issuance exceeding ₹30,000 crore in FY2024),
Kerala displayed the highest WAM for its issuances at 22 years and Gujarat was the lowest at 7 years in FY 2024, they added.
The gross borrowing in FY2024 was 7 per cent lower than the ₹10.9 lakh crore indicated by the states to the RBI, per the analysis.
Adjusting for redemptions in FY2024, net borrowings increased by 38 per cent to ₹7.2 lakh crore in FY 2024 from ₹5.2 lakh crore in FY 2023.
STATE BORROWINGS
“States borrowed ₹1.7 lakh crore and ₹1.9 lakh crore in Q1 and Q2 FY2024, respectively, which was lowerthanindicated by 1620 per cent...The actual SGS issuance in Q3 stood at ₹2.5 lakh crore, modestly exceeding the indicated amount.
“In Q4 FY2024, the SGS issuance of ₹4 lakh crore accounted for as much as 40 per cent of the total borrowing in FY2024, in line with the trend in FY2023. This was a mild 2.5 per cent lower than the planned amount for Q4 FY2024 and was the highest quarterly borrowing so far,” according to the report.
The actual SGS issuance of ₹1.9 lakh crore during March 2024 was a massive 51 per cent above the indicated amount of ₹1.3 lakh crore.
“Higherthanindicated borrowing by Uttar Pradesh and Maharashtra comprised nearly 78 per cent of the ₹64,900 crore additional SGS issuance during March 2024.
“Several factors may have driven some states to expand their borrowings in March 2024, such as a preference to hold larger cash going into the period of the model code of conduct prior to the Parliamentary elections. It is possible that some states chose to use up a larger part of their borrowing limit for FY 2024 before the year ended,” opined ICRA’s economic research team.
Additionally, the kickoff of the borrowing calendar in a fiscal is influenced by the timing of receipt of borrowing permission from the Government of India.
“It is unclear if the heavy borrowing by some State governments in Q4 FY2024, was driven by their anticipation of a delayed receipt of borrowing permission from the Government of India for FY 2025, similar to the case in FY 2023 and FY2024, which had tempered borrowings in Q1 of those years,” ICRA said.
TOP BORROWER
Tamil Nadu retained its position of top borrower in FY2024 for the fourth successive fiscal, with issuance of as much as ₹1.13 lakh crore in FY2024. Maharashtra (₹1.10 lakh crore), UP (₹97,700 crore), Karnataka (₹81,000 crore), Rajasthan (₹73,600 crore) and Andhra Pradesh (₹68,400 crore) accounted for more than half of the total borrowing of ₹10.1 lakhcrore in FY2024, assessed the agency.