Indian states are poised to borrow a record 5 trillion rupees ($55.45 billion) in the January to March quarter, the Reserve Bank of India said on Friday, a move that is expected to add pressure to an already weakening government bond market.
Bond market participants had anticipated a heavy issuance calendar for the final quarter of the financial year after states raised a combined 7.13 trillion rupees through bond sales in the first three quarters. If the planned borrowing goes ahead in full, it would mark the highest quarterly borrowing ever by Indian states and push their total annual borrowing to a new all-time high.
The surge in issuance comes at a time when demand for bonds has softened across market segments, raising concerns that the additional supply could drive yields higher. Investors have been cautious amid large borrowing requirements from both central and state governments, limiting appetite for longer-dated debt.
“Irrespective of whether the actual borrowing undershoots, we are going to see a rise in longer duration yields of central as well as state debt,” said a trader at a state-run bank, reflecting expectations that the increased supply will weigh on prices and lift borrowing costs in the months ahead.
