States borrowing cost slips to 7.90%

After touching nearly 8 per cent last week, the states breathed a little easy on Tuesday as the cost of their borrowings eased marginally to 7.90 per cent.

The weighted average cost of states' borrowings inched down by 6 basis points to 7.90 per cent at the latest auctions of state development loans (SDLs) as state debt is known, when nine states collectively raised Rs 18,700 crore from the markets on Tuesday.

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This is 22 per cent lower than the Rs 24,000 crore that was initially indicated for the week, according to an analysis by rating agency Icra.

Though the weighted average cut-off eased to 7.90 per cent from 7.96 per cent in the last auction, the spread between 10-year SDL and G-secs yields increased to 43 bps from 39 bps last week.

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While the benchmark 10-year G-secs yield declined to 7.37 per cent from 7.43 per cent last Tuesday, the weighted average cut-off of the 10-year SDLs eased to 7.80 per cent from 7.82 per cent last week.

The marginal ease in the yields is partly because of the fall in the weighted average tenor to 14 years from 15 years last week.

The overall debt sale declined 22 per cent as seven states -- Maharashtra, Uttar Pradesh, Punjab, Kerala, Madhya Pradesh, Uttarakhand and Goa did not participate in the auctions, despite indicating that they would borrow Rs 9,800 crore this week.