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State Borrowings to Hit Rs 14 Lakh Crore in FY27, RBI Pilots New Strategy

State governments are projected to raise between Rs 13.4 and 14 lakh crore in the 2026-27 financial year, reflecting a 5-9% annual increase. The Reserve Bank of India has outlined borrowing plans, including a significant 26.7% year-on-year rise for the first quarter. A key development is the pilot of a Benchmark Issuance Strategy by the RBI, involving nine states, to create a more standardized yield curve and enhance market transparency. However, the report notes that past gaps between indicated and actual borrowing have limited such strategies, calling for faster approvals and communication of borrowing limits.

Key Points: State Govt Borrowing FY27 to Grow 5-9%, Hits Rs 14 Lakh Crore

  • Gross borrowing up 5-9% YoY
  • Net borrowing estimated at Rs 9.2-9.7 lakh crore
  • RBI pilots Benchmark Issuance Strategy
  • Aims to develop structured yield curve
  • Gap between planned & actual issuance a challenge
2 min read

State governments likely to raise Rs 13.4-14 lakh crore in FY27, up 5-9% YoY: ICRA

ICRA projects state govts to raise Rs 13.4-14 lakh crore in FY27. RBI's new Benchmark Issuance Strategy aims to improve market liquidity.

"ICRA forecasts the gross SGS issuance in FY2027 in a range of Rs. 13.4-14.0 trillion (5-9 per cent YoY growth) - ICRA Report"

New Delhi, April 6

State governments are expected to raise between Rs 13.4 lakh crore and Rs 14 lakh crore in the current financial year FY2027, marking a growth of 5 to 9 per cent compared to the previous year, according to a report by ICRA.

The report noted that after accounting for redemptions of Rs 4.2 trillion in FY2027, the net State Government Securities (SGS) issuance is estimated to be in the range of Rs 9.2-9.7 trillion (1 trillion = 1 lakh crore). This reflects a year-on-year growth of 1 to 8 per cent compared to Rs 9.0 trillion in FY2026".

It stated, "ICRA forecasts the gross SGS issuance in FY2027 in a range of Rs. 13.4-14.0 trillion (5-9 per cent YoY growth), up from Rs. 12.8 trillion in FY2026".

The Reserve Bank of India has already outlined borrowing plans for the first quarter of FY2027. The central bank has pegged the gross SGS issuance at Rs 2.5 trillion for Q1 FY2027, which is 26.7 per cent higher on a year-on-year basis.

A key feature of the borrowing strategy this year is the Benchmark Issuance Strategy (BIS), introduced by the RBI on a pilot basis. Under this framework, nine states will collectively borrow Rs 1.5 trillion by issuing securities in standardised maturity buckets.

The aim of this approach is to develop a more structured SGS yield curve over time, which will help improve liquidity and transparency in state government borrowings.

However, the report pointed out that for the BIS to be effective, actual issuance by the participating states must align closely with the indicated borrowing amounts in the benchmark maturity buckets.

In recent years, there has been a noticeable gap between the indicated and actual SGS issuance in the first quarter, which has limited the effectiveness of such strategies.

The report suggested that this gap could be reduced if states submit required information more quickly to the Government of India for determining their borrowing limits. Faster vetting, approval and communication of borrowing limits by the Centre could also help streamline the process.

- ANI

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Reader Comments

P
Priya S
Rs 14 lakh crore is a massive amount! 💰 While growth seems steady, I hope this borrowing is directed towards productive infrastructure and social schemes, not just filling budget gaps. The common citizen wants to see results on the ground.
R
Rohit P
The report highlights a persistent issue - the gap between indicated and actual borrowing. Faster approvals from the Centre are needed, but states also need to be more disciplined in their planning. This coordination is key for fiscal health.
S
Sarah B
Interesting to see the pilot for a standardized yield curve. As someone who follows markets, this could make state bonds more attractive to institutional investors if it brings predictability. Hope the nine states in the pilot set a good example.
V
Vikram M
Net borrowing around Rs 9.5 lakh crore after redemptions. The numbers are huge, but the real question is the debt sustainability for states. Some states are already under stress. Hope this borrowing fuels growth and doesn't become a burden for future generations.
M
Michael C
A 26.7% YoY increase in Q1 issuance is significant. The RBI and the Finance Ministry seem to be pushing for more organized state borrowing. The success of the BIS pilot will be something to watch closely this fiscal year.

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