Tamil Nadu’s borrowing cost went up marginally by 4-6 basis points in this week’s bond auction, when compared to last week.
On Tuesday, the State raised ₹3,000 crore through the issue of long tenure bonds of 30 years and 25 years respectively with an interest of 7.03% each. In the previous week, it had raised ₹3,000 crore through the issue of bonds with tenures of 20 and 25 years with interests of 6.99% and 6.97% respectively, according to data from the Reserve Bank of India.
The weighted average cost of borrowing for State governments across States and tenures was 6.86%, 12 basis points higher than last week, the ratings firm CARE Ratings said.
It said that the higher borrowing cost is due to lower demand for State government bonds, also known as State Development Loans (SDLs), in anticipation of higher supply in coming weeks. CARE also pointed out that investors are seen to prefer Central government securities, as the RBI has been buying the securities in the secondary market.
Tamil Nadu has so far borrowed ₹15,000 crore in 2021-22, when compared to ₹18,000 crore in the same period last year. For the first quarter of this fiscal (April-June) it has indicated it will borrow ₹23,450 crore, which is lower than the ₹28,000 crore, it borrowed last year.
The cumulative issuance of SDL stands at ₹79,300 crore so far in Q1 FY2022, about 36% lower than the ₹1,242,00 crore indicated for this period, according to rating firm ICRA. The total issuance has shrunk by 37.2% from ₹12,62,00 crore raised during the same period last year.
The intense lockdown to curb the second wave of COVID-19 pandemic, would impact the revenue collections of States including Tamil Nadu and they have to resort to borrowings to meet the shortfall this fiscal as well.
Unlike other States, Tamil Nadu has not availed of the short-term borrowing facility available under RBI’s special drawing facility and ways and means advances. Instead the State has prepared to borrow from the market, especially through the issue of long tenure bonds.
ICRA pointed out that after trailing the indicated level in six out of eight weekly auctions, the SDL issuance on Tuesday was 16% higher than the ₹16,900 crore initially indicated for this week. This suggests that the windfall related to the additional unexpected Central tax devolution of ₹45,000 crore received by the states by the end of March 2021 has been exhausted, it added.
The continued localised restrictions necessitated by the second COVID-19 surge are dampening consumption and tax collections of the State governments, it added.
