Gross market borrowings of state governments likely to rise: ICRA1 min read . Updated: 17 Feb 2017, 10:38 PM IST
Gross market borrowings of state governments would rise to around Rs4.5 trillion in FY 2018 from Rs3.7 trillion in the current financial year, says an ICRA report
New Delhi: Gross market borrowings of state governments is estimated to rise 22% in financial year 2018 on account of larger fiscal deficits, higher repayments and exclusion from National Small Savings Fund (NSSF), credit ratings agency ICRA said on Friday.
According to ICRA’s report, gross market borrowings of state governments would rise to around Rs4.5 trillion in FY 2018 from Rs3.7 trillion in the current financial year. This would exert an upward pressure on state development loan yields (SDL) in FY 2018.
“Expectation of higher market borrowings in the Financial Year 2018 can be attributed to the pay revision and servicing of the UDAY debt, a spike in debt repayment from FY2018 onwards and the exclusion of most state governments from investing in the National Small Savings Fund (NSSF) since April 1, 2016." said Jayanta Roy, group head, corporate sector rating, ICRA.
The demonetisation drive would also trigger higher expenditure by states on account of lower collection of tax revenues post demonetisation.
Also, since the demand for the overall credit by the private sector is subdued on account of sluggish capital spending and less attractive interest rates, banks can essentially fund themselves by investing in the SDL bonds as they offer higher rates than the government securities. This would also put additional pressure on the state development’s loan (SDL) yield, said the report.
For FY 2017, until February 14, the gross market borrowings of all the state governments through the SDLs had increased by a sharp 27.1% to Rs3.2 trillion. This figure was higher than that of the last fiscal year which was around Rs2.5 trillion. State development loans are the debt issued by state governments to fund their fiscal deficits.