Weighted average cut-off yield of State Govt Security issuances rose 73 bps during FY23: RBI report

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The weighted average cut-off yield (WAY) of State Government Security (SGS) issuances rose 73 basis points (bps) during 2022-23 to 7.71 per cent from 6.98 per cent in the previous year, according to RBI’s report “State Finances : A Study of Budgets of 2023-24”.

However, the weighted average spread (WAS) of SGS issuances over Central government securities of comparable maturity moderated to 31 bps in 2022-23 from 41 bps in the previous year.

Upward bias in sight

The report, put together by senior RBI officials, noted that SGS yields traded with an upward bias during 2022-23, reflecting, inter alia, the hike in the policy repo rate by the Reserve Bank and the hardening of the US bond yields.

The issuance of 10-year maturity securities constituted 27.9 per cent of the total amount of issuances in 2022-23 as compared with 35.1 per cent in the previous year. The rest 72.1 per cent was spread across maturities, ranging between two and 35 years.

Reflecting debt consolidation efforts, 55.1 per cent of the outstanding SGSs were in the residual maturity bucket of five years and above as of end-March 2023.

Around 79 per cent of SGS are getting matured during next 10 years, implying higher rollover risk for State governments, cautioned the officials.

Increasing borrowings

States’ net market borrowings increased by 5.4 per cent to ₹5.19 lakh crore in 2022-23 from ₹4.92 lakh crore in 2021-22. This increase was concentrated in a few States like Andhra Pradesh, Gujarat, Himachal Pradesh, Madhya Pradesh Haryana and Assam, the report said.

There were 605 issuances in 2022-23, of which 45 were re-issuances (7.4 per cent) as compared with 608 issuances in 2021-22 and 60 re-issuances (9.9 per cent).

Madhya Pradesh, Maharashtra, Puducherry, Punjab, Rajasthan and Tamil Nadu undertook re-issuances during the year, in line with the policy of passive consolidation. Out of 350 issuances undertaken by States till October 19, 2023, 30 were re-issuances.