Here we also track the evolving partnership between the RBI and the State Governments 1. State Development Loans - State governments and Union Territories borrow from the market only (apart from the UDAY bonds) through bonds called State Development Loans (SDLs). 1. UDAY bonds - UDAY Bonds - Issued by state governments (from 2015 onward), typically long-term (10–15 years), high-coupon bonds used to raise funds from investors to repay debt of state-owned power DISCOMs, with states effectively taking over the liabilities and paying interest to bondholders. 2. ==Effective June 12, 2025==, the RBI introduced Separate Trading of Registered Interest and Principal of Securities (STRIPS) for State Government Securities (SGS), 3. They are auctioned by RBI, and are eligible as collateral when borrowing from RBI under the LAF 4. Coupon - They pay semi-annual coupon (fixed) ## Timeline 1. 1934-1935 - The RBI Act of 1934 statutorily entrusted the central bank with managing the Central Government's debt and cash, while simultaneously allowing State Governments to voluntarily enter into agreements for similar banking and debt management services 2. 1935 - the Agricultural Credit Department was established in 1935 to boost state-level agricultural financing. 3. 1937 - Recognising the the volatile nature of government revenues, the RBI introduced ([Ways and Means (WMA)](Ways%20and%20Means%20(WMA).md) Advances to help the state governments manage temporary mismatches in their daily cash flows. 4. Pre-1990s - RBI would raise combined loans for all States at a single pre-determined interest/coupon rate, heavily relying on the high [SLR - Statutory Liquidity Ratio](SLR%20-%20Statutory%20Liquidity%20Ratio.md) to ensure commercial banks bought these bonds. It was an period of captive markets. 5. June, 1992- The Central Government started shifting from administered rates by adopting the auction method (yield based) for its own open market borrowings, setting the stage for eventual state-level reforms. 1. 91-day T-bill auction started on [[Treasury Bills (T-Bills)#^a0786f|January 8, 1993]]. 6. 1997 - RBI Governor Dr. C. Rangarajan convened the first bi-annual Conference of State Finance Secretaries, transforming the relationship into a collaborative dialogue on debt ceilings, borrowing methods, and financial guarantees. 7. 1997 - To reflect new market realities, the RBI altered the borrowing framework, fixing State coupon rates at a slight mark-up over Central Government yields and granting States the option to raise 5% to 35% of their borrowings via market auctions. 8. 1998 - The first informal Advisory Committee on WMA, led by Shri B.P.R. Vithal, made a structural break from the past by recommending that borrowing limits be linked to actual cash flows rather than arbitrary minimum balances, ensuring fairer access for all States. 9. January 1999 - The first State adopted the auction route for its borrowings. 1. 2001 - Meanwhile, to safeguard against future debt traps, the RBI circulated a model for the Consolidated Sinking Fund (CSF), which 11 States quickly adopted by 2001. The fund was proposed by the Tenth Finance Commission (10th TFC) 2. It is a fund maintained with RBI, to repay their debt on time. 3. The Twelfth Finance Commission had recommended that the CSF may cover repayments in respect of all the loans of the State Governments (and not just open market borrowings) 1. As of early 2024–2025, the Consolidated Sinking Fund (CSF) has been established by 24 states and the Union Territory of Jammu & Kashmir 10. 1999-2002 - Following deep concerns about hidden fiscal risks, States initiated self-imposed ceilings on the financial guarantees they issued to state enterprises, and the RBI began publishing reports to enforce better risk evaluation. 11. 2003-2005 1. As pension liabilities threatened to swallow up to 30% of State revenues by 2010, the RBI and States formulated structural reforms, eventually drafting a template for State-level Fiscal Responsibility Legislations (FRLs) that almost all States subsequently enacted. 2. Karnataka was the first state to enact its Fiscal Responsibility Act in 2002, followed by Kerala, Punjab, and Tamil Nadu in 2003. 3. They were states' version of the centre's FRMB Act. 12. 2005-2006 1. April 2005 - Following recommendations of the Working Group on Liquidity of State Government Securities (Chairman – Shri. V.K.Sharma) to improve the marketability of state debt, the RBI allowed State Development Loans (SDLs) to eligible for repo transactions under the LAF. So SDL also became LAF eligible security. 2. Primary Auction - Non-competitive bidding facility was introduced in respect of the primary auctions of SDLs 3. 24 States boldly transitioned to the auction route, raising nearly half of their market debt at highly competitive rates. 4. Recommendations of the Twelfth Finance Commission, headed by C. Rangarajan were implemented, like the comprehensive debt relief scheme. 1. To avail the benefits of this scheme, a state had to enact its own version of the Fiscal Responsibility and Budget Management (FRBM) Act. 2. The scheme lead to (in some measure) the moderation in fiscal imbalances and progressive enactment of Fiscal Responsibility Legislation by the States 3. The cut-off yields in the auctions were, in general, lower than the tap issues as markets' perception of the debt of states changed. 48.5% of their total borrowings were raised through the auction route during 2005-06 5. 2010 - All 28 states in India had enacted their own state-level Fiscal Responsibility and Budget Management (FRBM/FRL) Acts by the end of 2010 13. 2006-07 - The market borrowings of the State Governments were entirely from the auction route vs the tap issues. 1. May 2006 - To incentivize further prudence, the RBI circulated revised templates for the Guarantee Redemption Fund (GRF) and CSF, rewarding participating States with enhanced access to Special WMA limits. 2. A remarkable turnaround occurred as States transitioned from chronic overdrafts to holding surplus cash. 3. To optimize these surpluses, the RBI conducted historic buyback auctions in early 2007, allowing States to prepay their expensive outstanding debt. 4. With their market borrowings now conducted 100% through the auction route, States faced new sophisticated challenges. The RBI stepped in to host technical workshops on managing foreign exchange risks for direct external assistance transferred to it by the Centre (as the risk was shifted to states, and centre no longer absorbed the exchange rate risk) and established a Standing Technical Committee to smoothly coordinate the national borrowing calendar. 5.  **Debt Prepayment** - General issues relating to the pre-payment of debt were discussed at the 18th conference of the State Finance Secretaries, held in August 2006. 1. The RBI conducted the first round of buyback auctions in February and March 2007. ## Primary Market 1. State Govt. - State have an indicative [quarterly](https://www.rbi.org.in/commonman/english/Scripts/FAQs.aspx?Id=3337#:~:text=quarterly%20indicative%20calendars) calendar and the level of (gross) market borrowings in a particular year is decided by the Central government, in consultation with the State governments. 2. [Primary Market](G-Secs-Primary%20Market.md) for G-Secs (centre & state) ## Secondary Market 1. [G-Secs-Secondary Market](G-Secs-Secondary%20Market.md) ## Data Releases 1. Quinquennial (every 5 years) 1. [Finance Commission Reports](https://fincomindia.nic.in/commission-reports-sixteenth) 2. Weekly 1. WSS - Market Borrowings by the Government of India and State Governments - Dated Securities 3. Annual Report 1. State Finances : A Study of Budgets 2. Handbook of Statistics on Indian Economy 3. Handbook of Statistics on Indian States 4. Annual Report of the RBI 5. _Report of the Comptroller and Auditor General of India on State Finances_ for the year 2023-24 6. Economic Survey of India 7. The Medium-Term Fiscal Policy (MTFP) Statement 1. It is a mandatory document presented annually with the state budget under the FRBM Act or FRL. 2. It ==outlines a three-year rolling target for fiscal indicators (revenue deficit, fiscal deficit, and debt levels) to promote fiscal discipline, sustainability, and transparency in state finances== 4. Monthly Bulletin 1. Tables 1. Ownership Pattern of Central and State Governments Securities 2. Combined Receipts and Disbursements of the Central and State Governments 3. Financial Accommodation Availed by State Governments under various Facilities 4. Investments by State Governments 5. Market Borrowings of State Governments 2. Article - State of the Economy 5. Research/Publications by CCIL 1. CCIL SDL Quarterly - A dedicated publication capturing quarterly trends in the SDL market. 2. [Rakshitra](https://www.ccilindia.com/researchintroduction) - The monthly CCIL newsletter containing analysis of outstanding G-Sec debt, domestic/international macro indicators, and market developments. 3. Monthly Review of Economy - Contains updates on macroeconomic trends impacting SDL issuances 6. Data & Statistics by CCIL 1. [Market Watch](https://www.ccilindia.com/market-watch): Real-time/daily tracking of market trading 2. [G-Sec Historical Trades](https://www.ccilindia.com/g-sec-historical-trades): Provides trade-by-trade details of outright transactions in the G-Sec market, including T-Bills. 3. Daily Data>Market Summary, Category Analysis, Security Analysis -  Provides daily updates on volume, trade, and outright/repo settlement of SDLs. 1. Category Analysis-Detailed reports on the market share and buying/selling activity of different participant categories (e.g., Foreign Banks, Mutual Funds, Primary Dealers). 4. [Tenorwise Indicative Yields](https://www.ccilindia.com/tenorwise-indicative-yields):** Tables showing yield movements across benchmark tenors for G-Secs, Treasury Bills, and State Development Loans (SDLs). 5. State Government Spread Analysis - Analyses spread trends between G-Secs and SDLs to assess market premiums 6. [G-Sec Market Liquidity Tracker](https://www.ccilindia.com/g-sec-market-liquidity-tracker) Analyzes market liquidity indicators, including bid-ask spreads, turnover ratios, and impact costs. 7. SDL Index - It is an indicator of the performance of state securities (in terms of price change and accrued interest) 1. It consists of 14 most recently issued 10-year maturity securities of 14 states 2. Methodology - [December 2025 version](https://www.ccilindia.com/documents/43866/1292813/CCIL%20SDL%20Index%20Methodology_1764580676693.pdf) 8. [Outstanding Debt](https://www.ccilindia.com/outstanding-debt) ## References 1. Y.V.Reddy. (2001). Primary Dealers, Debt Markets and State Finances : Challenges and Responses - Dr.Y.V.Reddy, at Seminar on The Future of Government Securities Market in India organized by Primary Dealers Association of India, at Bangalore on September 22, 2001. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=87) 2. Y V Reddy. (Sep, 2007). The Reserve Bank and the State Governments – partners in progress Address by Dr Y V Reddy, Governor of the Reserve Bank of India, at the Madras School of Economics, Chennai, 23 September 2007. [pdf](RBI_Speeches_20070924_The%20Reserve%20Bank%20and%20the%20State%20Governments-%20Partners%20in%20Progress_Y.V.Reddy.pdf) 3. B. P. Kanungo. (Aug 31, 2018). State Government Market Borrowings – Issues and Prospects - Shri B. P. Kanungo, Deputy Governor, Reserve Bank of India - August 31, 2018 - at the Financial Market Conclave of the Bengal Chamber of Commerce and Industry, Mumbai. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=1063) ### [[Publications (Data Releases) & Research#Publications|Publications]] [Groups/Committees](Groups%20and%20Committees.md) 1. RBI. (Oct 12, 2006). Report of the Working Group on Compilation of State Government Liabilities. [Link](https://rbi.org.in/scripts/PublicationReportDetails.aspx?ID=486) 2. RBI. (16 Jan 2024). Report of the Working Group on State Government Guarantees. [Link](https://rbi.org.in/scripts/PublicationReportDetails.aspx?ID=1261) [More References](G-Secs-Primary%20Market.md#References)