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Ratings agency ICRA in its latest report has said that States are shelling out more for debt funds, with the weighted average cost for their debt auctions hardening by 9 basis points (bps) to touch 7.24 per cent, the highest level so far this fiscal, during the auctions on January 18, 2022. Compared to the previous week, the cost has gone up by 9 bps. From the first auctions in January, the cut-offs have been trending over 7 per cent.

According to the report, while 12 states raised Rs 21,200 crore on January 18, 6 per cent higher than the indicated level for this week, six of them borrowed Rs 6,700 crore more than indicated led by Uttar Pradesh. It borrowed Rs 900 crore more than the amount indicated. The share of longer tenor and 10-year debt has risen to 48 per cent so far in Q4 from 42 per cent and 29 per cent, respectively, in Q3 and Q2 of FY22. At the latest auctions, Rs 11,500 crore or 54 per cent of the total issuance was in longer tenor debt, Rs 7,200 crore or 34 per cent was in 10-year instruments and the balance Rs 2,500 crore or 12 per cent was in shorter tenor.

The report said in line with global trends, domestic yields have hardened since last week, reflecting the imminent rate hikes by the US Fed, increase in crude oil prices, firming of the domestic CPI inflation as well as the magnitude of supply expected in FY23.