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Home >News >India >Uneven trend of redemption seen in state development loans, says Icra
The proportion of total SDL issuance in the 10-year maturity bucket declined to 49% in FY20 from 65% in FY19. (Photo: AFP)
The proportion of total SDL issuance in the 10-year maturity bucket declined to 49% in FY20 from 65% in FY19. (Photo: AFP)

Uneven trend of redemption seen in state development loans, says Icra

  • Until FY17, issuances of SDLs were largely concentrated in the 10-year maturity bucket. The preference for this tenor has declined since FY18, with state governments issuing a larger portion of SDLs in buckets other than the 10-year tenor

MUMBAI: An analysis of individual maturity profiles of state development loans (SDLs) of 18 major states by rating agency Icra has found an uneven trend of redemption for some states in the coming decade, with gaps in certain years interspersed with spikes.

"Our analysis suggests scope for issuing SDLs in FY21, with maturities in FY22-25 by most state governments, and with maturities in FY28-29 by some state governments, which could help to even out the states’ individual redemption pattern over the next eight years," said the rating agency in a report.

According to Icra, until FY17, issuances of SDLs were largely concentrated in the 10-year maturity bucket. The preference for this tenor has declined since FY18, with state governments issuing a larger portion of SDLs in buckets other than the 10-year tenor.

The proportion of total SDL issuance in the 10-year maturity bucket declined to 49% in FY20 from 65% in FY19. This was accompanied, Icra said, by an increase in the share of issuance of shorter tenor SDLs of less than 10-year tenor to 26% in FY20 from 15% in FY19, as well as longer tenor SDLs (more than 10-year tenor) to 25% from 20%, respectively.

The state governments, including eligible union territories (UTs) in India, fund their fiscal deficit primarily by borrowing from the market by issuing SDLs.

"Their reliance on market borrowing for funding their fiscal deficits increased to 83% in FY18 from 64%-66% during FY14-17, following the discontinuation of borrowing by states from the National Small Savings Fund (NSSF) with effect from 1 April 2017, which had funded 1-7% of the states’ fiscal deficit during that period," it said.

Icra estimates that 77.1% of fiscal deficit of the state governments, indicated in their FY20 revised estimates, was funded through the net SDL issuance, similar to the level in FY19, albeit appreciably lower than FY18.

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