Mumbai: The state government pays a rigid price for their loans as yields rise in the money market.
The state government has seen their loan costs up by 9-14 basis points (100bps = 1 percentage point) from last month.
RBI has announced the auction of state bonds (state development loans, or SDL) taking place on Tuesday.
It was issued by 12 state governments, with a total RS 20,659 Crore.
These bond ownership ranges from five years to 20 years.
The largest borrower, the state of Uttar Pradesh (at RS 3,000 Crore) sold 10-year bonds on cut-off results by 7.24%.
Among other countries chose the 10-year paper problem, West Bengal boasts its bond in the cut-off results of 7.23% compared to 7.14% two weeks ago.
10 years Bihar was at 7.24% and Goa & Manipur sold at 7.23%.
On January 4, the 10-year yield was 7.10%.
Therefore, the overall cost has gone up 0.14%.
“The results of bonds surged upward on inflation and budget concerns.
The loan program for next year is below the focus.
And, with the exchange of around Rs 4 Lakh Crore, will once again become a big loan program,” said Chief Economist Bank Baroda Madan Sabnavis .
He showed that oil prices added inflation pressure.
It costs higher than what Triple A-rated paid that pays their loans.
For banks, there is no credit risk in buying state government loans auctioned by RBI.
Unlike loans by the state government that conducts, interest payments and principal on this loan are confirmed by the central bank by dipping into an American account.
All state governments have accounts with RBI, where the transfer of the central government is parked.
However, there is a higher risk of liquidity and market risk.
The market for bonds is not as deep as central government bonds, because price movements that tend to be more fluctuating.
According to the maintenance ratings report in December, the measure of the consolidated state budget becomes higher than the center, development responsibility is almost the same distributed throughout the center and the state.
According to various budgets, the expenditure for the center is the RS 34.8 lakh crore for FY22 compared to Rs 42.9 Lakh Crore consolidated for America.
“In fact, with the Financial Commission mandating higher transfers to countries from central revenue collection (41%), the role of the state has increased,” said the report.