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Key Points

State Development Loans continue to face weak demand for the seventh straight week, with a bid-to-cover ratio of just 2.71. Meanwhile, central government securities saw healthier interest, particularly for the newly introduced 30-year tenor. The SDL cut-off yield rose sharply by 18 basis points, reflecting investor caution. Insurance firms and pension funds drove strong demand for long-term G-secs.

Key Points: State Development Loans See Weak Demand for Seventh Straight Week

  • Six states raised Rs 85 billion in latest SDL auction
  • Bid-to-cover ratio dips to 2.71 amid muted demand
  • G-secs see stronger demand with 2.91 bid-to-cover ratio
  • 30-year G-sec tenor attracts robust interest from insurers
2 min read

State development loans face weak demand for seventh straight auction: ICICI Bank

ICICI Bank reports subdued SDL auctions for seventh week as G-secs attract stronger demand, especially for new 30-year bonds.

"State Development Loans: Weak demand for the seventh consecutive auction – ICICI Bank"

New Delhi, August 19

State Development Loans (SDLs) continued to see subdued investor appetite for the seventh consecutive week, while central government securities (G-secs) witnessed better demand, especially for the newly introduced 30-year tenor, according to a report by ICICI Bank.

In the latest SDL auction held last week, six states, Bihar, Goa, Haryana, Jammu and Kashmir, Maharashtra, and Telangana, raised Rs 85 billion, in line with the notified amount.

It stated "State Development Loans: Weak demand for the seventh consecutive auction".

However, the demand remained muted. The bid-to-cover ratio, which measures investor interest, edged slightly lower to 2.71 compared with 2.75 in the previous auction.

Overall, the report stated that the cut-off yield for the entire auction rose sharply by 18 basis points to 7.26 per cent. This reflects sustained investor caution, as SDL auctions have now shown tepid demand for seven consecutive weeks.

So far in the financial year, states have raised Rs 3,328 billion through SDLs, marking a 31% increase on a year-on-year basis.

For this week, nine states are scheduled to raise Rs 176 billion, which is slightly lower than the auction calendar amount of Rs 185 billion. Meanwhile, the SDL spread over G-secs edged up by about one basis point to 45 basis points, highlighting the weak demand scenario.

In contrast, the central government's borrowing programme witnessed healthier demand in the latest G-sec auction conducted on Thursday. The Centre raised INR 250 billion, in line with the notified amount, with issuance spread across the 5-year and a newly launched 30-year tenor.

The auction drew a bid-to-cover ratio of 2.91, which was higher than the long-term average of 2.8. Demand trends, however, were mixed across maturities. The cut-off price for the 5-year tenor was marginally lower than market expectations, pointing towards weak appetite. Most of the bids came from domestic banks and mutual funds.

On the other hand, the 30-year tenor saw strong participation. The cut-off yield was below market estimates, indicating robust demand. Insurance firms and pension funds emerged as the key buyers for the longer tenor bonds.

Looking ahead, the report outlined that the Centre is expected to raise Rs 360 billion in the upcoming G-sec auction this week.

- ANI

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Reader Comments

P
Priya S
Interesting to see insurance firms jumping on 30-year G-secs! Shows long-term confidence in India's economy 🇮🇳 But state loans... not so much. Maybe states need to improve transparency in fund utilization?
A
Aditya G
As a small investor, I always preferred SDLs for slightly higher returns. But with yields becoming volatile, I'm shifting to central govt bonds. Safety first in these uncertain times!
S
Sarah B
Working in mutual funds, we've been advising clients to be cautious about SDLs. The 18bps yield jump is alarming! States need to address governance issues to regain investor trust.
K
Karthik V
Not surprising at all. After seeing how some states misuse funds for freebies instead of development, who would invest? Centre should impose stricter conditions on state borrowings.
N
Nisha Z
The 30-year G-sec success shows foreign investors still believe in India's long-term story. But states need to get their act together - maybe RBI should review SDL guidelines?

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