Total oustanding until March end 2018 stands at Rs1.15 trn
MUMBAI: With Rs1000 crore having been raised as a 10-year state development loan (SDL) two days ago (May 29, 2018), through a coupon-based auction, Kerala’s cumulative value of SDLs this financial year has touched Rs5500 crore.
The state had already raised Rs4500 crore through two separate SDLs with tenure of 10 years, in two tranches of Rs3500 crore and Rs1000 crore during last month (April). SDLs are issued through auctions similar to those conducted by the Central government for the issue of dated securities (G-Secs).
Interest is serviced at half-yearly intervals and the principal is repaid on the maturity date. Several other states also participated in the latest auction that was conducted on the Reserve Bank of India’s core banking solution (E-Kuber) (RBI) along with Kerala, for an aggregate amount of Rs7775 crore.
Kerala sits on 120 SDLs or bonds outstanding as of March end, 2018 for an aggregate value of Rs1,14,735 crore (Rs1.15 trillion) as per statistics released by Clearing Corporation of India Ltd (CCIL). The average coupon rate of the SDLs outstanding for Kerala is 8.27 per cent, which is relatively high compared with that of several other states.
While the highest average coupon rate for the outstanding SDLs is for Mizoram state loans, at 8.33 per cent, only two other states carry higher (average) coupon rates than Kerala’s – Andhra Pradesh (8.31 per cent) and West Bengal ( 8.28 per cent).
While Kerala accounts for 4.78 per cent of the aggregate SDL outstanding by all states as of March end, 2018, the largest chunk of the development bonds outstanding is in the names of Maharashtra and Uttar Pradesh at 10.47 per cent and 10.29 per cent respectively.
Getting subscriptions to state development bonds (SDLs) is seldom viewed as a problem as investment in these bonds qualifies for statutory liquidity ratio (SLR) under Section 24 of the Banking Regulation Act (1949) as they carry zero risk as in the case of G-Securities issued by Government of India – means no capital charge for accumulating such assets.
Moreover, these bonds issued by states invariably carry a premium (on coupon) over that of G-Secs issued by Government of India and should theoretically trigger higher demand from banks while building up SLR basket.
According to the latest statistics, state development bonds (SDLs) and the dated securities issued by Central Government (G-Secs) account for 41.6 per cent of the combined market borrowings by the states and Central Governments in 2017-18 compared with 24.1 per cent in 2012-13.
The share of SDLs towards financing the fiscal deficit of states has surged from 16.9 per cent in 2006-07 to more than 75 per cent in 2016-17 budget estimates.
Apart from SDLs, the financing of the fiscal deficit of the states has historically been done through loans from financial institutions, loans from the central government, state provident funds and reserve funds, etc.