The Reserve Bank of India said on Saturday several states would not borrow more than the Rs 14151 crore (Rs 141.51 billion) set to be raised in the next few weeks for the current financial year ending March 2003.
Government bonds yields have already risen nearly 20 basis points since Wednesday when it was announced that the states would borrow such a huge amount from the market.
The central bank will conduct the sale of 10-year loans issued by 27 state governments for Rs 7,325 crore (Rs 73.25 billion) on February 25. The issuers have the option to retain oversubscriptions of up to 25 per cent of their target.
This will be followed by a second tranche where states will borrow Rs 6,826 crore (Rs 68.26 billion) in March.
"There is some confusion in the market about the oversubscription," a senior central bank official said. "If the states receive 25 per cent oversubscription in the first round, then in the second tranche the borrowing amount will be less."'
Several traders had expressed concerns in the past two days about the states' decision to retain 25 per cent oversubscription in the first round, with most saying it would tighten money market liquidity further and pressure bond yields.
The Reserve Bank of India is the merchant banker to both the central and state governments and conducts auctions and sales on behalf of them.
The latest sales are part of a debt-swap agreement between the central and the state governments which seeks to bring down their cost of borrowings and improve their financial position.
Indian interest rates have fallen by nearly 400 basis points in the past two years and under the agreement, states which owe high cost debt of 13-14 per cent to the central government can lower their repayment costs through the fresh borrowings.
States are estimated to have raised Rs 15,803 crore (Rs 158.03 billion) so far in the financial year, which ends in March and Rs 13,474 crore (Rs 134.74 billion) in the previous financial year.
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