India’s state loan costs rose further about the weak demand from the bank
Indian countries face higher loan costs and collect less than they planned at auction on Tuesday due to weak demand from banks, the largest investor in this securities.
Some top banks approach their internal boundaries for such investment and communicate this problem to the Reserve Bank of India last week, four sources of bank treasury said, asking anonymity because they were not authorized to talk to the media.
RBI did not respond to emails asking for comments.
Constraints may have depressed requests at the auction, traders said. Countries gathered 290.83 billion rupees ($ 3.3 billion) through bonds, failed to reach their target for the second consecutive week, while some were rejected.
The spread above the results of federal government bonds is between 40 and 115 basis points after the auction results, higher than the previous week.
The bank, among the largest Indian government bond holders, has been marked by the purchase of state debt over the past two years because their loans have increased. The state government is expected to borrow a record of 12 trillion rupees in the fiscal year until March 2026.
Uncertainty for withholding interest rates, limited purchases by insurance companies and pension funds, and concerns about the increase in government loans because the planned consumption tax deduction has been reserved the bond market in recent weeks.
Indian government bonds rose around 20 bps in August. The State premium paying federal bond yields has jumped more than 100 bps from 70 bps two weeks ago, because the demand is less than supply.
“Many banks, especially those managed by the government, have invested a lot in state bonds when RBI Dovish and in the midst of the level of loosening and now trapped by the shares, closing their ability to buy more,” said one source.
Most banks managed by the government limit state bonds around 40% -50% of their debt portfolio, traders said.
In March 2025, lenders had more than 35% state debt, according to RBI data, with traders said the shares had increased further in the first five months of this fiscal year.
Economists note that tax cuts can hit the state more than the federal government, which can encourage their loans.
The results of federal benchmark bonds have increased by almost 20 bps since the announcement of the tax plan on August 15, while state products have increased by 70 bps.
Source: Reuters
