The Hindu Business Line : Fall-out of fiscal responsibility Act, tougher compliance norms — State Govts going slow on bond issues this year

Home Page - States
Money & Banking - Debt Market

Fall-out of fiscal responsibility Act, tougher compliance norms — State Govts going slow on bond issues this year

C. Shivkumar

Bangalore , Oct 17

FACED with tight fiscal compliance norms and intense surveillance by regulators, issuance of State Government guaranteed securities have reduced to a trickle.

This year no figures are out, but bankers confirmed that the number of bond issues supported by State Government guarantees had substantially reduced.

SBI Capital Markets Ltd, the investment banking division of the State Bank of India, has traditionally been one of the largest arrangers for State Governments. The Managing Director of SBI Caps, Mr Indrajit Gupta, said "This year there is a reduction in the numbers of issuers."

Last year outstanding State Government guaranteed securities were close to Rs 1,85,000 crore, mostly made by electricity boards, special purpose vehicles, urban development authorities/ municipalities and road transport finance corporations. The only notable issue this year was by the Kerala Transport Development Finance Corporation, priced at 7.25 per cent for a small amount. Traditional large issuers such as Gujarat, Andhra Pradesh, Karnataka and Maharashtra have made few issues so far this year.

Bankers attributed this to the fact that some of these large issuers had already refinanced their high coupon borrowings during the last two years with long duration bonds at low rates. One of the major reasons for the slowdown in the number of issues was the impact of new risk weighting norms put in place by the RBI early this year. State Government securities are now expected to be risk weighted at 100 per cent and provisioned accordingly.

Besides, banking sources said, the slowdown was also on account of the tight monitoring by the Securities and Exchange Board of India. The State Government guaranteed securities with effect from 2003 are expected to be listed on the stock exchanges. Bankers said not many State Governments were willing to comply with some of the disclosure norms since most of the funds were raised for revenue expenditure instead of capital expenditure.

Mr Gupta said that major factors that had stifled the issue of sub-sovereign guaranteed securities were the fiscal responsibility legislation and the stiff compliance targets for compliance.

State Governments are expected to bring down their guarantee obligations to 0.5 per cent of their respective State Domestic Products.

Most of them currently have guarantee obligations ( excluding the component of implicit guarantees, letters of comfort) well in excess of this limit, the sources said.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Bay warming up again, rains to drive up east

Bombay HC sets aside sale of NTC land

Stocks of cos owning real estate in Mumbai fall

Fund houses line up slew of FMP schemes

Fall-out of fiscal responsibility Act, tougher compliance norms — State Govts going slow on bond issues this year

Food processing industry taxation structure to be reviewed

Deve Gowda seeks details of land allotted to IT cos — Infosys' request for 845 acres for centre is the trigger

`Salaries fast outpacing job skills'

HDFC Bank Q2 net up 31 pc on retail surge

Cisco to focus on intelligent network

Mobile network congestion worsening: TRAI