State development loan
- September 23, 2020
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Subject: Economy
Context:
- Eleven States raised a total of Rs. 14,298 crore at the auction of State government securities or State development loans (SDLs) held on September 22.
- From April 7 to September 22 in this financial year, 27 States and 2 Union Territories have cumulatively raised Rs. 3.26 lakh crore via market borrowings, which is a 45% increase from the borrowings in the corresponding period of 2019-20.
Concept:
- State Development Loans (SDLs) are dated securities issued by states for meeting their market borrowings requirements.
- Purpose of issuing State Development Loans is to meet the budgetary needs of state governments. Each state can borrow upto a set limit through State Development Loans.
- The SDL securities issued by states are credible collateral for meeting the SLR requirements of banks as well as a collateral for availing liquidity under the RBI’s LAF including the repo.
- One remarkable feature of SDL is that it is a market oriented instrument for states to mobilise funds from the open market. Higher the fiscal strength of a state, lower will be the interest rate (yield) it has to pay for the SDL borrowings.
- SDLs are basically securities and they are auctioned by the RBI through the e-Kuber which is dedicated electronic auction system for government securities and other instruments. RBI holds SDL auctions once in a fortnight.
- The rate of interest or yield of SDL securities are determined through auction. Still the interest rate will be slightly higher than that of Central Government securities (G-secs) of matching tenure.
- The investors in SDL are basically commercial banks, mutual funds, insurance companies who are attracted by the slightly higher interest rate of SDL (compared to central government securities).