State loans will increase in the 3rd quarter by 26% to 3.6 thousand. ₹ under New Issue Strategy: ICRA

New Delhi: States are poised to ramp up their market borrowing significantly in the October-December quarter, with gross issuance of state government securities (SGS) likely to rise 25.9% year-on-year to ₹3.6 trillion, according to an ICRA report released on Monday.

States raise market borrowing to refinance older debts that are due, as well as to cover social security and revenue expenditures.

This development assumes significance as 26 States and Union Territories (UTs) have now adopted the Reserve Bank of India’s (RBI) Benchmark Issuance Strategy (BIS), accounting for 77% of total planned borrowing in the quarter. RBI’s benchmark issuance strategy was piloted in Q1 FY27 and requires participating states to issue securities within specified maturity bands instead of random maturities set in the quarterly borrowing calendar. The aim of the framework is to bring greater predictability and standardization of borrowing on the state market.

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The RBI’s indicative auction calendar, released on October 1, set the gross issuance of government bonds by 27 states and two UTs at ₹3.6 trillion in 3QFY27 compared to ₹A year ago, 2.9 trillion were actually selected. After accounting for estimated redemptions ₹Net government borrowing of 1.3 trillion is expected to increase by 26.8%. ₹2.3 trillion, more than ₹1.8 trillion in the third quarter of FY26.

Contrasted with the center

India has 28 states and 8 union territories.

States’ borrowing plan, as per the ICRA report, contrasts with the Centre’s 2nd half (October-March) borrowing plan as the government cut estimated market borrowing for FY27 by nearly ₹1.2 trillion and now plans to increase ₹7.86 trillion dated government securities in the second half of the fiscal year.

The center now expects to borrow ₹15.995 trillion through dated securities during FY27 compared to ₹17.2 trillion estimated in the Union Budget as per its borrowing plan released in consultation with the Reserve Bank of India (RBI).

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The increase in government borrowing is expected to be concentrated among a handful of large states. Maharashtra, West Bengal and Haryana together account for nearly 70% of them ₹742 billion in incremental gross borrowing is planned for the quarter.

Maharashtra indicated an increase ₹198 billion for 3QFY26, followed by West Bengal at ₹183 billion and Haryana at ₹135 billion.

The expansion of BIS could make the stated borrowing plans a more reliable guide to actual issuance, ICRA said.

Seven more states and Union Territories, including Assam, Goa, Haryana, Mizoram, Nagaland, Tripura and Jammu and Kashmir, adopted the framework in the third quarter, taking the total number of BIS participants to 26.

In accordance with the plans

These 26 states and UTs have reported borrowings ₹2.8 trillion in the third quarter, representing approximately 77% of total planned borrowing for the quarter. ICRA expects actual issuance by these states and UTs to remain roughly in line with their indicated plans based on borrowing trends in the previous two quarters.

The initial nine states increased ₹3.31 trillion in the first half of FY27 as against the above ₹3.26 trillion, slightly exceeding the planned amount.

However, the second batch of 10 states and UTs that adopted the framework from Q2 FY27 has risen ₹593 billion, or 92% of their indicated ₹641 billion.

Among the major states that remain outside the BIS, Tamil Nadu, Gujarat and Karnataka reported borrowing in the third quarter ₹480 billion, ₹150 billion and ₹200 billion, or

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ICRA also expects the actual borrowings of the countries that remained outside the BIS to be roughly in line with the amounts shown in their borrowing calendars.

The borrowing schedule is also heavily tilted towards the second half of the quarter. States plan to increase ₹1.06 trillion in October, ₹1.14 trillion in November and more ₹1.4 trillion in December, with the final month of the quarter accounting for nearly 39% of total issuance in the third quarter. December loans are planned through five auctions.

For the full financial year, ICRA maintained its estimate of gross SGS emissions at ₹13.4-14.0 trillion, against ₹12.8 trillion in FY26. Its net SGS emission estimate is at ₹9.2–9.7 trillion compared to ₹9 trillion last year.