States made to pay too high price to sell SDLs: Dr Isaac

Kerala CM seeks permission to issue Pandemic Relief Bonds

THIRUVANANTHAPURAM: The Kerala finance minister, Dr Thomas Isaac, has expressed strong displeasure over the high interest rates (coupon) quoted by the banks and other financial institutions taking part in the auction of the state development loans (SDLs) on Tuesday (April 7).

Meanwhile, the chief minister Pinarayi Vijayan once again reiterated his demand to raise the borrowing limit for the state up to 5 per cent and also to allow states to raise funds from abroad through different agencies.

Requesting that the amount thus raised not to be treated as part of the borrowings, the CM called upon the Central Government to allow the states to issue Special Pandemic Relief Bonds to raise funds in order to combat the fallout of the COVID outbreak.

Though Kerala auctioned three securities with tenures of 10 years, 12 years and 15 years on Tuesday aiming to raise Rs2000 crore each, the 15-year SDLs couldn’t attract the targeted amount of Rs2000, falling short of Rs70 crore, as sufficient bids failed to show up at the cut-off yield as high as 8.9 per cent.

While the 10-year SDLs were auctioned at a cut-off yield of 7.91 per cent, the 12-year securities yielded 8.1 per cent during Tuesday’s auction, the first one in the new financial year that commenced on April 1. The state that is currently staring down the barrel due to a series of financial exigencies at hand, has thus raised Rs5930 crore through theTuesday’s auction..

“This has happened in the backdrop of the RBI monetary policy less than two weeks back where the repo rate saw a steep cut of 75 basis points to the decade’s low of 4.4 per cent, and when the CRR was reduced by 100 basis points to 3 per cent thus releasing Rs1.37 lakh crore for the commercial banks,” Dr Isaac reminded.

According to financial analysts, the SDL yields on Tuesday were about 100 basis points to 150 basis points higher compared with past close to two years, despite the fact that the repo has witnessed a steep fall of about 200 basis points during the period.

Ironically, this is a time when the banks such as State Bank of India (SBI) are preparing to pass on the repo cut to their customers, and they are said to have already effected around 75 basis points cut in their MCLR, which forms the benchmark for their commercial lending.

Dr Isaac said banks are making the ‘proverbial hay’ while the states are left with few options to run the show during these tough times “This shows the hollowness of the Government’s financial policy at the Centre. What the Union government should do now is to borrow funds from RBI and extend it to states at viable rates,” he added.

He also said the quoting of high rates by banks during the SDL auctions against the market realities shows their lakh of trust in the economic future of the country.

 

States allowed to borrow 50 pc in April is baseless: RBI

Kerala to borrow Rs13,565cr in first 9 months

MUMBAI: Reserve Bank of India (RBI) on Thursday dismissed the rumours that the Government of India (GoI) has allowed states to avail up to 50 per cent of their borrowing requirement for the financial year 2020-21, in April itself.

An RBI statement said that the total amount Kerala can raise through the auction of state development route during the first nine months of the financial year 2020-21 has been capped at Rs13,565 crore as per the plans already finalised,

RBI as part of explaining the process of scheduling the market borrowings by states said these amounts are finalised before the start of the financial year itself through bilateral consultations between the states and the Centre and the amount is arrived at after assessing each state’s net borrowings requirement during the year.

“The competent authority of the government of India has accorded consent to the State Government under Article 293 (30) of the Constitution of India to raise open market borrowing (OMB) on the basis of 50 per cent of net borrowing ceiling fixed for the year 2020-21 under the proposed borrowing programme of the State for financing the State’s Annual Plan 2020-21,” RBI quoted the Centre’s communication on the matter.

The GOI consent under Article 293 (3) of the Constitution of India for the borrowing by the state government is applicable for the first nine months of the current financial year 2020-21 and as per the State Government’s advance indicative calendar submitted to RBI.

While the total borrowings by all states and union territories (UTs) scheduled for the first nine months amount to Rs3.2 lakh crore, the biggest borrower as per the plan is Maharashtra at Rs46,182 crore followed by Uttar Pradesh at Rs29,108 crore and Tamil Nadu at Rs28,880 crore.

 

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