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.