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Credit rating agency ICRA in its latest report has said that market borrowing cost for the states remained high with the average yield hitting 7.83 per cent at the auctions held on November 1, 2022, which is a paltry 1 basis points lower than the last auction of state securities. Seven states raised Rs 10,700 crore at Tuesday's auction of state government securities (SGS), which is just about half of the Rs 20,800 crore indicated for the week.

According to the report, the weighted average cut-off slipped to 7.83 per cent from 7.84 per cent last week, despite the rise in weighted average tenor to 15 years from 13. However, the yield on 10-year G-secs declined by 4 basis points (bps) to 7.40 per cent while the weighted average cut-off for 10-year state bonds slipped only by 1 bps to 7.82 per cent. Accordingly, the spread between the weighted average cut-off of 10-year state bonds and the 10-year G-sec yield rose to 42 bps from 39 bps.

The report stated that the reason for the massive fall in the draw-down is because big borrowers like Haryana, Karnataka, Maharashtra, Tamil Nadu, Uttar Pradesh and Sikkim did not participate in auctions even though they had indicated a combined borrowing of Rs 10,200 crore for this week. Additionally, Andhra and Rajasthan borrowed Rs 1,100 crore less than indicated. In contrast, Madhya Pradesh raised Rs 1,000 crore more than indicated and so did Punjab drawing down Rs 200 crore more than indicated in the quarterly auction calendar. Kerala issued 23-year bonds at a cut-off of 7.80 per cent, lower than the cut-off of 7.82 per cent for the 10-year bond from Assam and Rajasthan. Overall, the cumulative draw-down so far this fiscal stood at Rs 3.6 lakh crore by 24 states, down 6 per cent from the year-ago period.