State Borrowing Hits Target: Yields Hold Steady Across Tenors in Latest SDL Auction

State Bond Auction Sees Strong Demand, Stable Yields

The Reserve Bank of India (RBI) successfully conducted a State Development Loan (SDL) auction on October 20, 2025, with five states collectively raising ₹170 billion, in line with their scheduled borrowing plan. The auction saw healthy participation across maturities, reflecting investor confidence in state-backed securities amid stable macroeconomic conditions.

Key highlights from the auction:

- Maharashtra  
  Raised funds via multiple tenors, including a 25-year bond at a cut-off yield of 7.29% and an 11-year bond at 7.20%. The state’s long-duration paper attracted steady demand, indicating investor appetite for duration.

- Chhattisgarh  
  Issued a 15-year SDL at a cut-off yield of 7.34%, the highest among the day’s offerings, reflecting a slight premium for longer maturity and regional risk.

- Uttar Pradesh  
  Raised funds at a cut-off yield of 7.15%, showcasing competitive pricing for one of India’s largest states.

- Tamil Nadu  
  Tapped the market with three tranches:  
  - 7-year bond at 6.99%  
  - 10-year bond at 7.14%  
  - Implicit yield on its 7.44% SDL maturing in 2055 stood at 7.3497%, indicating strong long-term investor interest.

- Rajasthan  
  Issued a 10-year bond at 7.23% and a 26-year bond at 7.30%, balancing short- and long-term funding needs.

- Aggregate Borrowing  
  The total ₹170 billion raised matched the targeted amount, signaling disciplined fiscal planning and effective execution by the RBI.

- Yield Curve Insights  
  The spread between short- and long-duration SDLs remained modest, suggesting a stable interest rate outlook and contained inflation expectations.

- Market Sentiment  
  The auction results reflect continued investor confidence in state finances and the RBI’s calibrated approach to managing liquidity and debt issuance.

As states continue to fund infrastructure and welfare programs, SDLs remain a vital tool for capital mobilization. The October 20 auction underscores the resilience of India’s sub-sovereign debt market.

Sources: Reuters, Reserve Bank of India (rbi.org.in), ANI News