RBI panel warns states’ Q4 borrowing rush may raise debt costs

New Delhi [India], September 29 (ANI): States concentrating a large part of their annual market borrowing in the January-March quarter could push up borrowing costs for all states, an RBI-appointed committee has said, calling for borrowings to be spread more evenly through the year.
The observation was made in the “Report of the Advisory Committee on Ways and Means Advances to State Governments”, released by the Reserve Bank of India (RBI).
The committee noted that some states tend to raise a large share of their annual market borrowing during the final quarter of the financial year. States have cited reasons such as higher expenditure in the second half of the year, the need to utilise borrowing permission received from the Centre, and maintaining adequate cash at the start of the next financial year.
However, the committee said this approach comes with costs.
“This may push up the borrowing cost for all the states during the fourth quarter due to excess supply of State Government Securities in the market,” the report said.
It added that such borrowing patterns can also leave states sitting on large idle cash balances towards the end of the financial year.
“The Committee, therefore, recommends that the states may consider spreading out their market borrowings throughout the year,” the report said.
The panel also backed the RBI's Benchmark Issuance Strategy introduced from financial year 2026-27 for state government borrowing, noting that a majority of states have already adopted it and recommending that the remaining states do so at the earliest.
The report also flagged broader cash management concerns among states. It said some states maintain large precautionary cash balances while continuing to borrow from the market, resulting in what it described as “negative carry” - where the cost of borrowing is higher than the return earned on idle funds.
According to the report, states' average investments in Intermediate Treasury Bills and Auction Treasury Bills stood at about Rs 3 lakh crore in 2025-26, compared with Rs 3.05 lakh crore in 2024-25.
The committee said states should improve cash management and avoid using market borrowing merely to meet short-term mismatches when RBI liquidity facilities are available. (ANI)