Indian states significantly increased their market borrowings to fund fiscal deficits in 2025-26, as revealed by the Reserve Bank of India's annual r
eport, leading to higher yields and wider spreads on State Government Securities.
Key Points
- States' reliance on market borrowings for gross fiscal deficit financing rose to 76.3 per cent in 2025-26 (budget estimates) from 71.8 per cent in 2024-25 (revised estimates).
- States raised approximately Rs 12.76 trillion through SGS issuances in 2025-26, an increase from Rs 10.73 trillion in the previous year.
- The weighted average cut-off yield on SGS issuances increased to 7.32 per cent in 2025-26 from 7.2 per cent, and the spread over comparable central government securities widened to 50 basis points.
- The RBI is sensitising states on adopting a Benchmark Issuance Strategy for market borrowings, to be piloted from 2026-27 in nine states.
- Despite global financial volatility, both central and state government borrowing programmes were successfully completed in 2025-26.
States increased their reliance on market borrowings to finance gross fiscal deficits in 2025-26, even as yields and spreads on state government securities (SGS) rose during the year.
According to the Reserve Bank of India’s (RBI) annual report, the share of market borrowings in financing states’ gross fiscal deficit rose to 76.3 per cent in 2025-26 in the budget estimates from 71.8 per cent in 2024-25 as per the revised estimates.
States raised Rs 12.76 trillion through SGS issuances in 2025-26 against Rs 10.73 trillion in the previous year. Gross market borrowings were 95.1 per cent of the amount indicated in quarterly calendars.
Rising Yields and Spreads
There were 1,055 issuances during the year, including 217 re-issuances, while the amount raised as a share of total sanctions rose to 93.6 per cent from 91.4 per cent a year ago.
The weighted average cut-off yield on SGS issuances rose to 7.32 per cent in 2025-26 from 7.2 per cent in the previous year.
And, the weighted average spread over comparable central government securities widened to 50 basis points from 30 basis points.
The average interstate spread on fresh 10-year SGS issuances rose to 8 basis points from 4 basis points a year ago.
States' Access to Funding
According to RBI data, 27 states and two Union territories (UT) issued dated securities with maturities ranging from two to 38 years, apart from the 10-year tenure during the year.
During the year, 19 states or UTs availed themselves of the special drawing facility.
Eleven resorted to ways and means advances, while 10 used overdrafts on a few occasions.
The Centre’s ways and means advances limit was fixed at Rs 1.5 trillion and Rs 0.5 trillion for the first and second halves of 2025-26, respectively.
The central government remained in surplus during most of the year and resorted to ways and means advances for one day against eight days in the previous year.
Outstanding investments by states and UTs in 14-day intermediate treasury bills increased during the year.
States and UTs also invested in auction treasury bills through the non-competitive bidding facility.
RBI's Benchmark Strategy
The RBI said it had been sensitising states on adopting a Benchmark Issuance Strategy for market borrowings to improve transparency and provide greater clarity to investors.
The strategy involves issuance in specific benchmark tenor buckets according to a pre-announced calendar.
The strategy will be introduced on a pilot basis from 2026-27 for Andhra Pradesh, Bihar, Chhattisgarh, Kerala, Madhya Pradesh, Maharashtra, Rajasthan, Telangana and Uttar Pradesh.
The central bank said the market borrowing programmes of the Centre and states were completed successfully during the year amid global financial volatility and geopolitical tensions.
It added that the borrowing programme for 2026-27 would be managed in an orderly manner, keeping in view fiscal deficit goals and evolving market conditions.
