States’ overdraft holding period extended
Though SDLs of each tenure aimed to raise Rs2000 crore aggregating Rs6000 crore, the loans raised through the longest-tenured SDL at 15 years fell short of Rs70 crore as enough bids failed to show up within the cut-off yield of 8.9 per cent sought by the state government.
While the cut off yield for 12-year paper was 8.1 per cent, that of 10 year securities was at 7.91 per cent, which was at a premium of about 150 basis points (bps) to the similar Government of India bonds (G-Sec) that yielded 6.41 per cent as on Tuesday.
According to an RBI note, Andhra Pradesh did not accept any amount in its 13-year and 14-year securities, whereas, Himachal Pradesh didn’t accept any amount in Tuesday’s auction. Punjab also didn’t accept any amount in its 10-year security as the auction failed to attract bids within the cut-off yield.
Though the total amount aimed to be raised by 19 states through auction on Tuesday was set at Rs37,500 crore, the amount raised was only Rs32,500 crore.
RBI extends overdraft holding period
In order to provide greater flexibility to the State Governments to tide over their cash-flow mismatches, RBI on Tuesday decided to increase the number of days for which a State/Union Territory (UT) can be in overdraft continuously to 21 working days from the current stipulation of 14 working days.
This arrangement will come into force with immediate effect and will remain valid till September 30, 2020.
Again, the number of days for which a State/UT can be in overdraft in a quarter has been increased to 50 working days from the current stipulation of 36 working days.
Kerala seeks 5 pc borrowing limit
The Kerala chief minister Pinarayi Vijayan has made a vociferous call to the Central Government to allow the states to borrow up to 5 per cent of their GDP in the wake of the financial crisis the states are going through after the outbreak of Corvid 19.
Anyway, the Kerala Finance Minister Dr Thomas Isaac has decided to go ahead with the plan of frontloading the market borrowing in order to address the immediate financial issues in hand.
Kerala’s SDL auction was the largest on Tuesday as the state floated dated securities with three tenures – 10, 12 and 15 years, for a total amount of Rs6000 crore. Many are at a loss as to how Kerala is going to raise a further Rs20,000 crore earmarked for KIIFB projects during the current financial year though Dr Isaac seems to be unperturbed about the plan.