RBI Auction Sees 16 States Raise ₹461 Billion, Cut-Off Yields Reflect Rising Borrowing Costs

India’s state government bond auction witnessed strong demand as 16 states raised ₹461 billion, exceeding the planned ₹445.5 billion. The RBI disclosed cut-off yields across multiple maturities, highlighting rising borrowing costs amid tighter liquidity and global yield pressures. The oversubscription reflects investor appetite for long-term securities despite higher interest rates.  

Key Highlights  

• Maharashtra cut-off yields stood at 6.77% (4-year), 7.34% (8-year), and 7.48% (11-year), with an additional ₹3.5 billion accepted in each tenor  
• Gujarat accepted ₹5 billion in its 7-year 6-month security, with cut-offs at 7.24% (7-year 6-month) and 7.40% (10-year)  
• Karnataka’s 8-year loan cut-off was 7.37%, with re-issues at 7.2443%; additional tenors included 7.38% (8-year 6-month), 7.44% (10-year), and 7.47% (10-year 6-month)  
• Uttar Pradesh cut-offs included 7.71% (20-year) and 7.32% (re-issue of 7.24% SGS 2033), alongside 7.6687% (re-issue of SGS 2041)  
• West Bengal’s 15-year loan cut-off was 7.72%, tied to re-issue of 7.74% SGS 2048  
• Haryana recorded 7.67% (15-year), linked to re-issue of 7.73% SGS 2045  
• Bihar cut-offs stood at 7.72% (15-year) and 7.69% (28-year)  
• Tamil Nadu’s 10-year loan cut-off was 7.43%, tied to re-issue of 7.44% SGS 2055  
• Andhra Pradesh raised funds at 7.69% (16-year) and 7.70% (21-year)  
• Rajasthan cut-offs were 7.44% (7-year) and 7.52% (10-year)  
• Goa cut-off stood at 7.50%, Kerala at 7.72%, Nagaland at 6.89%, Punjab at 7.54%, and Sikkim at 7.53%  
• Chhattisgarh recorded 7.64% (14-year), linked to re-issue of 7.59% SGS 2046  

Strategic Impact  
The auction highlights rising borrowing costs for states, reflecting inflationary expectations and global yield trends. Analysts note that while demand remains strong, higher cut-off yields could pressure state finances. The oversubscription underscores the critical role of SGS in funding infrastructure and welfare programs, reinforcing their importance in India’s fiscal landscape.  

Sources: Reuters, Economic Times, Business Standard