By CL Jose
Total FY22 borrowings through SDLs to reach Rs19,000 cr
THIRUVANANTHAPURAM/February 25-2022: Kerala is set to borrow up to Rs1500 crore by selling securities – state development loans (SDLs), on February 28, exactly after a gap of two months, the longest gap in the current fiscal.
Though the plan is to borrow Rs1000 crore, the Finance Department is open to enhance it up to Rs1500 crore, by invoking the ‘green-shoe option’ for another Rs500 crore, provided the pricing is favourable and the appetite is there.
SDLs account for about 60 per cent of the state’s borrowing that is used to fund the fiscal deficit. This may be the last SDL borrowing before the state budget for 2022-23 to be presented by the Finance Minister KN Balagopal.
This is also a crucial period when the State Government under the Chief Minister Pinarayi Vijayan is made to burn a lot of time and energy batting the myriads of chidings from the Opposition, mostly for the ‘mismanagement’ of the state finances.
[The sale of bonds or SDLs is being done through the Reserve Bank of India (RBI), and generally, institutions, mostly banks and insurance companies buy these bonds, which qualify for the statutory liquidity ratio (SLR) requirements of the banks – being accorded zero per cent risk weighting.]
Kerala has so far borrowed Rs17,500 crore through SDLs during the fiscal. In fact, the borrowings through SDLs during this fiscal (not sure about the past years) hasn’t matched the indicative plan announced for the state earlier by the RBI.
As per the RBI indicative plan, Kerala was supposed to borrow Rs9152 crore during the third quarter (October-December), but the actual borrowing was a far cry from that – at only Rs3000 crore.
Again, as per the indicative plan for the last quarter – January- March, Kerala is scheduled to borrow Rs6408 crore – thus leaving about Rs5000 crore as the remaining quantum of SDLs to be sold during the current (4th) quarter.
Seemingly to ward off any short term or medium-term redemptions or say, to buy more time to pay back these borrowings, the state has rather chosen to sell much longer-period bonds during the current fiscal, the shortest being 10-year SDLs.
Only longer-period bonds
A close scrutiny of the maturity profile of the SDLs (bonds) thus sold during the fiscal testifies that this time, there are SDLs with tenures of 25 years, 30 years and even 35 years, as part of the SDL borrowing programme.
It is worth recalling that Kerala had, during 2019-20, elected to go for extremely shorter period SDLs – like 2-year and 3-year, as a strategy to bring down the yield or interest rates
As per the current plans, the state is likely to close this financial year, with an aggregate borrowing through SDLs, at about Rs25,000 crore. But this could very well be broken, if what the past has shown can be viewed as a trend.
