State Development Loan

Subject : Economy

Section : Fiscal Policy

Concept :

Tamil Nadu is planning to raise ₹51,000 crore in the fourth quarter (January-March) of fiscal 2022-2023 by auctioning off bonds called State Development Loans, according to the Reserve Bank of India’s borrowing calendar.

State Development Loans (SDLs)

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 up to 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 mobilize 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).