Reissued bonds account for nearly 66% of state borrowings in H1 of FY27

New Delhi: States have been increasing their dependence on 'reissued bonds' to raise funds, with such issuances accounting for nearly two-thirds of their total market borrowings in the first half of FY27.

According to data compiled by PTI from the Reserve Bank of India (RBI), states raised Rs 4.98 lakh crore through State Development Loans (SDLs) in the first half of FY27, of which Rs 3.28 lakh crore came through reissuances, accounting for 65.94 percent of the total.

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The share of reissued bonds was 18 percent of the total SDL issuances in FY26. This was higher than the 17.29 percent recorded in FY20 and the highest share in at least seven financial years.

The trend marks a sharp acceleration in adoption of reissuances, which gained ground over the past two years amid efforts to improve liquidity and transparency in the state government securities market.

A 'reissuance' entails the issue of an existing, previously issued bond series into the market rather than creating a brand-new security with a new maturity date or coupon rate.

In FY25, reissuances accounted for 12.2 percent of total state borrowings, 5.73 percent in FY24, 7.77 percent in FY23, while the share was 10.4 percent in FY22 and 9.72 percent in FY21, the data showed.

The growing preference for reissuances comes against the backdrop of the RBI's efforts to encourage states to adopt the Benchmark Issuance Strategy (BIS), aimed at improving transparency and providing greater clarity to investors in the state government securities market.

Under the strategy, states issue securities in specified benchmark tenor buckets in line with a pre-announced borrowing calendar, allowing investors to better anticipate issuances and potentially improving trading liquidity in the secondary market.

In its annual report for FY26, the RBI said it had been sensitising states about adopting the BIS and decided to introduce the strategy on a pilot basis for nine state governments from FY27, based on their concurrence.

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The impact of the initiative is already visible in the increased participation of states in reissuing securities.

According to an Icra report, 24 states opted to reissue State Government Securities (SGS) in the first half of FY27, compared to just four to nine states during the corresponding periods of FY23 to FY26.

Icra said the trend suggested that reissuance could become the default mode of borrowing for states in the coming months, in line with the Centre's approach to issuing government securities.

The rating agency also noted that reissuances could help increase secondary-market trading volumes of SGS, which have been constrained by the large number of International Securities Identification Numbers (ISINs) issued by individual states, each often having a relatively low outstanding amount.

By consolidating outstanding securities through reissuances, states could help improve the tradability of their bonds and deepen the secondary market, potentially making them more attractive to investors.

The RBI, in its agenda for FY27, has also identified sensitising the remaining states and Union Territories to adopt the BIS as a key priority, noting that the strategy has already been adopted by nine state governments.

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