Indian state governments are borrowing more, and paying more for it. Market borrowings by States and Union Territories for October-December 2026 stood at ₹3.61 lakh crore, according to RBI data cited by The Hindu BusinessLine. That is 28 per cent above the ₹2.82 lakh crore scheduled for the same period last year.1 Recent RBI auctions have seen 10-year State development loans (SDLs) clear at cut-off yields of around 8.10 per cent, or about 8.26 per cent annualised given semi-annual interest.1
SDLs are issued by state governments to meet their financing requirements and sold through RBI-run auctions. Maturities run from two to 40 years.1 If a state falls short on a payment, the dues can be adjusted against funds the Centre owes that state.1 Clearing Corporation of India data as of October 29 put weighted average yields at 7.9 per cent for five-year SDLs, 8.18 per cent for 10-year and 7.99 per cent for 15-year. The weighted average spread between G-Secs and SDLs was 61 basis points.1
The rate backdrop is tightening. The RBI raised its repo rate by 25 basis points on October 7 and changed its policy stance. The article says another 25-basis-point hike in December is possible amid persistent inflation.1 Bond market expert Venkatakrishnan Srinivasan of Rockfort Fincap LLP says rising AAA-rated corporate bond yields have made those bonds relatively more attractive than SDLs. He says this could compel state governments to offer higher yields to attract investors.1 The article adds that secondary-market liquidity in SDLs can be limited, and that stronger-rated states such as Maharashtra, Gujarat and Tamil Nadu generally find greater acceptance among institutional investors.1