RBI’s July 2025 SDL auction shows Indian states borrowing heavily—not for development, but to repay maturing debt. As rollover dependency grows, fiscal red flags emerge across high-debt states like Punjab, Kerala, and West Bengal.
By ABC Live Research Team | July 9, 2025
New Delhi (ABC Live): RBI SDL Data: India’s state governments raised ?13,300 crore through the latest State Development Loan (SDL) auction conducted by the Reserve Bank of India (RBI) on July 8, 2025. While strong investor demand across tenors signals market confidence, mounting fiscal data reveals a more concerning trend—many states are now borrowing just to repay maturing loans.
? Auction Snapshot: Oversubscription But at a Cost
According to the RBI’s auction release, states including Madhya Pradesh, West Bengal, Bihar, Odisha, and Telangana issued bonds spanning 10 to 30 years, with cut-off yields ranging from 6.88% to 7.15%. All bonds were oversubscribed, some by more than double their notified amounts.
| State | Tenor | Notified (? Cr) | Subscribed (? Cr) | Cut-off Yield (%) |
|---|---|---|---|---|
| MP | 18 yr | 2,300 | 5,992 | 7.05 |
| Telangana | 30 yr | 1,000 | 2,735 | 7.15 |
| West Bengal | 20 yr | 1,500 | 4,450 | 7.10 |
| Bihar | 10 yr | 1,000 | 2,305 | 6.88 |
| Odisha | 15 yr | 1,500 | 3,410 | 7.08 |
Despite high subscription levels, analysts note that elevated yields reflect increased repayment risk and market caution over long-term state borrowing.
? The Real Debt Picture: Repayment via Refinancing
A deeper dive into RBI’s fiscal data reveals that most states are using new loans to repay old ones.
“Nearly 50–60% of recent SDL issuances have been used to refinance maturing debt, not fund new projects,” said the ABC Live Research Team.
?? Key Findings:
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?4.9 lakh crore in state debt will mature between FY2024–26.
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Interest payments in states like Punjab and West Bengal now consume over 25% of revenue receipts.
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Revenue deficits in 14+ states indicate borrowing is covering even day-to-day expenses, not just capital investments.
? Visual Insight: RBI SDL Data Burden & Rollover Risk by State
State SDL Burden and Rollover Risk (FY2023–24)
? What This Means
According to the RBI’s 2024–25 State Finances Report:
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Outstanding state debt remains high at 28.5% of GDP, even as central government debt moderates.
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States like Kerala, Punjab, and West Bengal are highly reliant on fresh borrowings to service existing loans.
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Fiscal consolidation targets under the FRBM Act are being consistently breached by high-debt states.
? Rollover Cycle Becoming Structural
“We’re witnessing a structural shift where market borrowings are no longer financing development—but merely recycling debt,” said ABC Live Senior Researcher Dinesh Rawat.
Unless states boost tax revenues or cut revenue expenditure, this cycle of borrowing to repay borrowing may become unsustainable.
?? Policy Recommendations
| Issue | Recommendation |
|---|---|
| High interest burden | Diversify maturities, issue longer-dated bonds |
| Rollover dependency | Create state-level SDL redemption reserves |
| Weak retail participation | Enable digital platforms, small-lot investing |
| Low CapEx, high subsidies | Enforce outcome budgets, rationalize spending |
? The Road Ahead
As bond markets absorb more state debt, investor appetite may persist—but only with fiscal prudence and transparency. The next RBI auction will serve as a key litmus test.
For now, the July 8 results are a double-edged signal: investors are buying—but at higher prices and with sharper questions about whether India’s states can stand on their own, or continue leaning on tomorrow’s debt to pay yesterday’s.
? Source: RBI Press Release on State Government Securities – July 8, 2025
? Research & Graphics: ABC Live Data Team
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