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The residual maturity profile of the combined stock of State Development Loans (SDLs) outstanding of all States and Union Territories (UTs) as on March 31, 2020, exhibits a broadly increasing trend in redemptions in the next decade, with peak maturity of around ₹3.7-lakh crore each in FY28 and FY30.
State Governments raise loans from the market via SDLs. SDLs are dated securities issued through normal auction similar to the auctions conducted for dated securities issued by the Central Government
As per ICRA’s assessment, between FY26 and FY30, the annual redemption of SDLs is estimated to expand by a high 25 per cent to ₹3.1-lakh crore in FY26 and 15.2 per cent to ₹3.5-lakh crore in FY27, followed by a mild 3.3 per cent rise to ₹3.67- lakh crore in FY28.
This is followed by a 12.3 per cent contraction in the SDL redemption amount to ₹3.2-lakh crore in FY29before increasing by 15.4 per cent to ₹3.7-lakh crore in FY30.
Out of the stock of SDLs outstanding of ₹30.6-lakh crore of the 28 States and two UTs as on March 31, 2020, ICRA said 32 per cent or ₹9.8-lakh crore is estimated to be redeemed between FY21 and FY25, and a substantial 56.2 per cent or ₹17.2-lakh crore between FY26 and FY30, indicating considerable redemption pressure in those years.
The balance 11.7 per cent or ₹3.6-lakh crore of the stock of SDLs is estimated to be redeemed from FY31 onwards, the agency added.
Scope for shortening maturity profile
The agency said the maturity profile of stock of state developments loans (SDLs) of some states suggests scope for issuing shorter tenor SDLs.
On a disaggregated basis, ICRA’s analysis of the individual maturity profiles of the SDLs of 18 major States, reveals an uneven trend of redemptions for some states in the coming decade, with gaps in certain years interspersed with spikes.
“Our analysis suggests scope for issuing SDLs in FY21, with maturities in FY22 to FY25 by most State governments, and with maturities in FY28 to FY29 by some State governments, which could help to even out the states’ individual redemption pattern over the next eight years,” the agency said.
Till FY17, the issuance of SDLs was largely concentrated in the 10-year maturity bucket. According to ICRA, the preference for this tenor has declined since FY18, with State governments issuing a larger portion of SDLs in buckets other than the 10-year tenor.
“The proportion of total SDL issuance in the 10-year maturity bucket declined to 49 per cent in FY20 from 65 per cent in FY19.
“This was accompanied by an increase in the share of issuance of shorter tenor SDLs (less than 10-year tenor) to 26 per cent in FY20 from 15 per cent in FY19, as well as longer tenor SDLs (more than 10-year tenor) to 25 per cent from 20 per cent, respectively,” said ICRA in its update on State Finances.
Benefitting from the longer tenor SDLs, ICRA estimates that the weighted average maturity of the stock of SDLs outstanding has increased to 7.9 years as on March 31, 2020, from 6.7 years as on March 31, 2019, while remaining relatively short.
“A continuation of the trend of issuing a portion of the SDLs in the longer tenor, will help the state governments to elongate the maturity profile of their stock of SDLs,” the agency said.
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