Maharashtra, Uttar Pradesh to raise ₹12,000 crore each thru auction on Thursday

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After 16 States and one Union Territory successfully mopped up ₹50,206 crore via auction of State Government Securities (SGS) on March 19, two States – Maharashtra and Uttar Pradesh – have decided to raise ₹12,000 crore each on March 21.

In fact, both Maharashtra and Uttar Pradesh had raised ₹6,000 crore and ₹8,000 crore, respectively, on March 19 and they are seeking to mop up more on March 21.

What is interesting is that RBI usually conducts a weekly auction of SGS’ every Tuesday. But this time it seems to have made an exception by announcing that it will conduct one more auction.

Madan Sabnavis, Chief Economist, Bank of Baroda, said States seem to be in a hurry to borrow and spend in the run up to the close of the financial year. He opined that they may be having fiscal space to borrow more.

Maharashtra and Uttar Pradesh will be issuing four papers (SGS’) of 10-15 years and 15-20 years tenor, respectively. They will be raising ₹3,000 crore through each paper.

V Rama Chandra Reddy, Head-Treasury, Karur Vysya Bank, noted that the borrowing by States and a UT at the last auction (March 19) was huge. Sixteen States & one Union Territory collectively mopped up ₹50,206 crore at via auction of SGS against the ₹27,810 crore they had planned to raise.

The weighted average cut-off at the biggest weekly auction of SGS so far in FY24 rose 7 basis points (bps) on March 19 due to huge supply of paper.

The weighted average cut-off of the SGS climbed to 7.45 per cent on March 19, 2024, from 7.38 per cent last week, ICRA said in a note.

This was despite a mild decline in the weighted average tenor of SGS’ to 15 years from 16 years during the same period.

“The spread between the cut-off of the 10-year SGS and the 10- year G-sec (7.18 GS 2033) yield also increased mildly to 36 bps on March 19, 2024, from 35 bps last week,” Aditi Nayar, Chief Economist, Head – Research & Outreach; Neetika Shridhar, Assistant Vice-President, and Jaspreet Kaur, Senior Analyst, said in the note.