State Development Loans (SDL)

Table of Contents☰

About State Development Loans:

These are dated securities issued by states for meeting their market borrowings requirements.
Purpose: To meet the budgetary needs of state governments.
The higher the fiscal strength of a state, the lower will be the interest rate (yield) it has to pay for the SDL borrowings.
These are securities and they are auctioned by the RBI through the e-Kuber which is a dedicated electronic auction system for government securities and other instruments.
Reserve Bank of India holds SDL auctions once a fortnight.
The rate of interest or yield of SDL securities is determined through auction.
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, and insurance companies that are attracted by the slightly higher interest

What are dated securities?

Dated Government securities are long-term securities or bonds of the government that carries a fixed or floating coupon (interest rate).
Securities are issued by the government (centre or state) for mobilizing funds.
Mostly financing the fiscal deficit is the most important purpose for issuing dated securities.

Q1) What is Fiscal deficit?

Fiscal deficit refers to the difference between a government’s total expenditure and its total revenue in a particular financial year. It is a measure of how much a government needs to borrow to meet its expenses.

Source: Four states raise Rs 5,800 crore through SDLs at bond auction