Weighted average cost of State Government Securities (SGS) eased by 20 basis points to 7.52 per cent in FY 2024, despite 33 per cent surge in issuance, according to ICRA.

Twenty-six state governments and 2 Union Territories (UTs) issued gross SGS’ of ₹10.1 lakh crore in FY2024, 33 per cent higher than the ₹7.6 lakh crore issued in FY2023, the agency said in a report.

Despite this, the weighted average cut-off (WAC) of the SGS dipped by about 20 basis points (bps) to 7.52 per cent in FY2024, from 7.71 per cent in FY2023, led by a relatively sharper decline in rates for longer tenor papers.

Telangana SGS

Notably, the WAC of Telangana SGS slipped by 30 bps to 7.47 per cent (lowest WAC along with Kerala and TN at 7.47 per cent), per an analysis by Aditi Nayar, Chief Economist, Head – Research & Outreach; Neetika Shridhar, Assistant Vice-President; and Jaspreet Kaur, Senior Analyst, ICRA.

The WAC of Karnataka’s SGS issuance eased by a mild by 2 bps to 7.60 per cent in FY2024 from FY2023, they said.

Reflecting the relatively attractive long-term rates and the highly front-ended redemption profile of the stock of SGS’ (as on March 31, 2023), the share of longer tenor paper increased to 63 per cent in FY2024 from 55 per cent in FY2023.

State-wise variations

Although the weighted average maturity (WAM) of the SGS issued in FY2024 was unchanged at 14 years compared to FY2023, there were wide state-wise variations, ICRA economic research team said.

Amongst the sample states (with gross issuance exceeding ₹30,000 crore in FY2024), Kerala displayed the highest WAM for its issuances at 22 years and Gujarat was the lowest at 7 years in FY2024, they added.

The gross borrowing in FY2024 was 7 per cent lower than the ₹10.9 lakh crore indicated by the states to the RBI, per the analysis.

Adjusting for redemptions in FY2024, net borrowings increased by 38 per cent to ₹7.2 lakh crore in FY2024 from ₹5.2 lakh crore in FY2023.

Highest quarterly borrowing

“States borrowed ₹1.7 lakh crore and ₹1.9 lakh crore in Q1 and Q2 FY2024, respectively, which was lower-than-indicated by 16-20 per cent...The actual SGS issuance in Q3 stood at ₹2.5 lakh crore, modestly exceeding the indicated amount.

“In Q4 FY2024, the SGS issuance of ₹4 lakh crore accounted for as much as 40 per cent of the total borrowing in FY2024, in line with the trend in FY2023. This was a mild 2.5 per cent lower than the planned amount for Q4 FY2024 and was the highest quarterly borrowing so far,” according to the report.

The actual SGS issuance of ₹1.9 lakh crore during March 2024 was a massive 51 per cent above the indicated amount of ₹1.3 lakh crore.

“Higher-than-indicated borrowing by Uttar Pradesh and Maharashtra comprised nearly 78 per cent of the ₹64,900 crore additional SGS issuance during March 2024.

March borrowings

“Several factors may have driven some states to expand their borrowings in March 2024, such as a preference to hold larger cash going into the period of the model code of conduct prior to the Parliamentary elections. It is possible that some states chose to use up a larger part of their borrowing limit for FY2024 before the year ended,” opined ICRA’s economic research team.

Additionally, the kick-off of the borrowing calendar in a fiscal is influenced by the timing of receipt of borrowing permission from the Government of India.

“It is unclear if the heavy borrowing by some State governments in Q4 FY2024, was driven by their anticipation of a delayed receipt of borrowing permission from the Government of India for FY2025, similar to the case in FY2023 and FY2024, which had tempered borrowings in Q1 of those years,” ICRA said.

Top borrower

Tamil Nadu retained its position of top borrower in FY2024 for the fourth successive fiscal, with issuance of as much as ₹1.13 lakh crore in FY2024. Maharashtra (₹1.10 lakh crore), UP (₹97,700 crore), Karnataka . (₹81,000 crore), Rajasthan (₹73,600 crore) and Andhra Pradesh (₹68,400 crore) accounted for more than half of the total borrowing of ₹10.1 lakh crore in FY2024, assessed the agency.

The bulk of the incremental borrowing of ₹2.5 lakh crore in FY 2024 relative to the year-ago period was led by Karnataka (₹45,000 crore), UP (₹42,100 crore), Maharashtra . (₹38,000 crore), Chhattisgarh (₹30,000 crore), Rajasthan (₹27,600 crore) and TN (₹26,000 crore).

“Interestingly, Chhattisgarh’s gross issuance recorded a multi-fold increase to ₹32,000 crore in FY2024 from a low ₹2,000 crore in FY2023.

“In contrast, among the sample states, Gujarat (29 per cent), MP (4 per cent) and Punjab (7 per cent) reported a y-o-y contraction in their SGS issuance in FY2024,” the ICRA team said.

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