The ratio of loans to less than 10 years has increased to 23% in Q3.
For the first time in the third quarter, in the auction held on Tuesday, the cost of state debt exceeded the level of 7 percentage points, with a weighted average cost of 7.01%, up 16 bps from the previous week.
The weighted average cut-off for state loan auctions increased by 16 bps to 7.01%, with the cut-off increasing across all periods. Similarly, Aditi Nair, Chief Economist, Icra Ratings, said the spread between 10-year state debt and G-Sec increased from 47 bps to 50 bps in the last auction.
The rating agency attributed the harsher rates to Rs 15,100 crore, a sharp 46% higher than the indicated demand for the week, which comes after a hiatus of seven auctions. Despite this, the total issuance has declined by 17.7% so far this fiscal.
The issue was higher as five states had borrowed Rs 8,300 crore more than indicated in the auction calendar.
The ratio of loans to less than 10 years has increased from 11% in Q1 and 19% in Q2 FY22 so far to 23% in Q3 so far, which has also led to an increase in cut-off rates, she said.
Inflation concerns and the RBI’s unexpected announcement of 3-day convertible reverse repo auction on Monday pushed the G-Sec yield higher. Also, in light of rising inflation in the US, the Federal Reserve announced last week that it would double the pace of asset purchases, and also indicated three rate hikes in 2022, Nair said.
As a result, the weighted average cut-off for 10-year state debt stood at 6.96% on Tuesday, 13 bps higher than last Tuesday. Accordingly, the spread between the 10-year weighted average state debt and government securities yield increased from 47 bps to 50 bps, respectively.
Another reason for the spike in cut-offs is the fall in availing advance facilities by the states from RBI, from 150 days in October to 244 days in October 2020, possibly due to release of balance amount of ₹84,000 crore during that month. To-back GST loan amount.
Despite the overall decline, Andhra, Jammu and Kashmir, Manipur, Mizoram and Telangana used the facility for more than 25 days each in October. Additionally, looking at the pick-up in usage by Jammu and Kashmir and Manipur, overdraft utilization declined only marginally from 65 days in October 2021 to 68 days in October 2020.