State development loans fall in Oct as yields remain high

The lack of substantial relief in yields coincided with a dip in state bond supply in October

- Rhik Kundu

State governments, which increased their market borrowings in the first half of FY26 to finance infrastructure projects and sustain growth, had a weak appetite for state development loans (SDLs) amid no substantial change in yield levels during October.

The latest data from the Reserve Bank of India (RBI) showed SDL issuances slumped 52.88% to %57,010 crore in October from ₹1.21 trillion in September, the highest monthly borrowing this fiscal. In October 2024, states had raised ₹64,842 crore.

The lack of any substantial relief in yields coincided with a dip in state bond supply in October, as several states temporarily paused fresh issuances. The 10-year SDL yield is currently around 7.20%, weighed down by an oversupply of state bonds in recent months and subdued investor demand, preventing any meaningful easing. Yield is the return an investor earns on a bond, expressed as an annual percentage of its price. It reflects the income generated, typically through interest payments, relative to the bond's market value.