State Bonds In Spotlight: PSU Banks Raise Investment Limits As RBI Concludes GS 2035 Auction

India’s public sector banks have raised their internal investment ceilings for state government bonds, signaling renewed institutional appetite for sub-sovereign debt amid evolving fiscal dynamics. Bank of Baroda, Punjab National Bank, Canara Bank, and Union Bank are among those increasing exposure, according to sources familiar with the matter.

 

Institutional Strategy Shift:  

- Enhanced limits reflect confidence in state fiscal management and improved debt servicing metrics  

- Move aligns with broader efforts to diversify fixed income portfolios beyond central government securities  

- Banks expected to selectively invest in high-rated state issuances with stable yield profiles  

- Regulatory frameworks continue to support calibrated expansion in state bond holdings

 

Auction Outcome Snapshot:  

- RBI accepted 136 bids worth Rs 319.88 billion at the new GS 2035 auction  

- Total bids received stood at Rs 1,395.45 billion across 365 submissions  

- Partial allotment of 50.26 percent applied to 114 bids, indicating oversubscription  

- Auction results suggest strong demand for medium-tenor sovereign paper amid rate stability  

- Yield benchmarks from this issuance likely to guide future pricing across comparable maturities

 

Sources: Reserve Bank of India Auction Bulletin, Ministry of Finance Debt Management Office, Reuters India Fixed Income Desk, Economic Times Banking Bureau, Business Standard Bond Market Tracker