RBI to host state development loan auction on October 22
The Reserve Bank of India announced on Friday that it will hold the first-ever open market operations (OMO) Development State Loans (SDL) auction for a total amount of 10,000 ₹ crore on October 22.
The central bank said the purchase auction amount was kept at ₹ 10,000 crore, keeping in mind that this was SDL’s very first OMO purchase. Depending on the market reaction, the auction size may be improved in subsequent auctions, he added.
The RBI will purchase two SDLs from each of the 15 states and Union Territories in a multi-security auction using the multiple price method. There is no security amount notified. SDLs expire in 2029, 2030 and 2031.
In its “Development and Regulatory Policy Statement,” released on October 9, RBI said it would conduct open market operations (OMOs) in LDCs as a special case during the fiscal year in prices to improve liquidity and facilitate efficient pricing.
The OMOs would be made for a basket of SDLs comprising securities issued by the States.
According to a note from CARE Ratings, 28 states and 2 UTs have raised ₹ 3.95 lakh crore through market borrowings so far in the current fiscal year, which is 52% more than borrowings from the corresponding period of 2019-20 (₹ 2.59 -lakh crore).
According to the borrowing schedule for the first three quarters of 2020-21 (April-December), states are required to borrow 5.07 lakh crore. States have already borrowed 78% of this amount, the rating agency said.
Lower cost of borrowing
In the note dated October 13, Kavita Chacko, Senior Economist, CARE Ratings, said: “As a result of the policy measures announced by the RBI at its monetary policy meeting on Friday, which included special OMOs (operations of open market) in SDL to support borrowing. state governments, there has been moderation in the cost of borrowing for state governments this week.
“The weighted average cost of borrowing for dated state government securities (across states and tenures) auctioned today at 6.50 percent was 30 basis points lower than there was. has a week. However, it was 17 basis points higher than a month ago (September 15, 2020). “