State Development Loans (SDL)

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Overview:

Recently, four states raised Rs 5,800 crore through state development loans (SDL) auction — about one-fourth of the amount 15 state governments intended to raise in the upcoming days.

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