Expenses that are directly related to the purchase, development, or production of a qualified asset are referred to as borrowing costs and are included in the cost of that asset. Additional state borrowing costs are classified as expenses.
Costs associated with borrowing may be capitalized or recorded as revenue expenses. Borrowing costs, such as interest, can be used to purchase raw materials or capital assets. One type of borrowing cost is revenue-related, while the other is capital-related.
 The weighted average cut-off rate for 10-year state loans dropped from 7.61 percent last week to 7.53 percent on Tuesday. States could relax in the debt market as the average cut-off rate on their market borrowings dropped substantially to 7.52 percent, the lowest level since mid-May and a drop of 15 basis points from the previous week. During the month under review, the Center had also authorized Rs 31,500 crore in special support for capital expenditures to 10 states.
According to research by Icra Ratings, the difference between the yield on 10-year government securities and the yield on 10-year state debt decreased this week from 39 bps to 37 bps. The 10-year G-secs yield decreased from 7.14 percent last Tuesday to 7.08 percent, reflecting the downward trend.
Additionally, the weighted average cut-off for 10-year state bonds decreased from 7.53 percent last week to 7.45 percent today. As a result, the difference between the new 10-year G-Secs yield and the weighted average 10-year state debt yield decreased from 39 bps to 37 bps.
As the cost has decreased by 10 basis points over the past two sessions, this is the third consecutive week that the state borrowing has fallen (bps). The yield dropped by 7 bps to 7.67% last week. Six states raised Rs 5,900 crore on Tuesday at the weekly State Development Loans (SDL) auction, which is approximately 54% less than what was projected in their weekly borrowing schedule, according to a note from Icra Ratings.
At Tuesday’s auctions, the weighted average cut-off significantly decreased by 15 bps to 7.52 percent. The weighted average tenor of the securities also decreased, the agency reported.
The weighted average tenor decreased from 15 to 13 years, and the cut-off across tenors also decreased, which were both ascribed to the sharp loss in yields. The 10-year state loan weighted average cut-off rate decreased from 7.61 percent last week to 7.53 percent on Tuesday.
Despite a 9 basis point decrease in the yield on new 10-year G-Secs to 7.14 percent from 7.23 percent last Monday, the spread between the 10-year SDLs and new 10-year G-Sec rates widened to 39 bps from 38 bps last week, the agency noted.
While Gujarat, Jammu and Kashmir, Madhya Pradesh, Manipur, Rajasthan, Sikkim, and Tamil Nadu had indicated a combined borrowing of Rs 8,500 crore, they did not participate in the auction. The six states that went to the market were Andhra, Assam, Bihar, Goa, Punjab, and Telangana, which raised a total of Rs 5,900 crore as state borrowings.
For the fourth week in a row, starting with the announcement of the second half of the tax devolution in early August, the auction came in below expectations.
23 states have raised a total of Rs 2.3 lakh crore this fiscal year, which is 15% less than the same period last year when it was Rs 2.7 lakh crore. Additionally, the actual issuance so far this fiscal year is 34% lower than the stated level of Rs 3.5 lakh crore.
The weighted average cut-off for the 10-year state debt decreased from 7.66% last week to 7.61% at the auctions held on Monday. The margin between the new 10-year G-secs yield and the weighted average 10-year state debt consequently mildly decreased to 38 bps from 39 bps, according to the agency.Â
States have been compelled to pay more for their market borrowings despite a stunning 40% decrease in bond issuances, as the weighted average interest rate reached a record 7.69% at the most recent auctions of state government securities.
Six states (Andhra, Bihar, Haryana, Kerala, Punjab, and Tamil Nadu) raised Rs 14,000 crore at the auction on Monday, which is 43% less than the Rs 24,500 crore that had been projected for this week. Since the distribution of the double tranche of tax devolution on August 10 (Rs 1.2 lakh crore) relative to the amount released in July 2022, this was the third week in a row of lower-than-indicated issuance.
