States' 2026-27 Borrowing Gains Predictability as More Adopt Benchmark Issuance Strategy - ICRA

State governments’  wider adoption of the Benchmark Issuance Strategy (BIS) expected to make borrowing more predictable, according to ICRA.

The Reserve Bank of India on Thursday announced a scheduled ₹3.2 trillion of gross state bond issuance for 24 states and three Union Territories during the second quarter, up 19.9% from the same period last year. After accounting for redemptions of ₹891 billion, net borrowing is estimated at ₹2.3 trillion, ICRA said.

Nineteen states and Union Territories will follow the BIS framework in the July-September quarter, up from nine in the April-June quarter. Together, these issuers account for around ₹2.4 trillion, or nearly three-fourths, of the quarter's planned borrowing.

April-June provided early evidence that the strategy could improve borrowing predictability.  ICRA stated that the nine states that participated in the pilot raised ₹1.536 trillion against the indicated ₹1.539 trillion, with the marginal shortfall caused by partial acceptance of bids in one auction. Most of the borrowing was carried out through reissuances while remaining within the announced maturity buckets.

The increase in planned borrowing for July-September  is largely driven by Uttar Pradesh, Tamil Nadu and West Bengal, which together account for nearly 90% of the additional ₹530 billion planned over the year-ago period.

The borrowing calendar is also front-loaded across the quarter. States plan to raise around ₹1.0 trillion in July, ₹957 billion in August and about ₹1.2 trillion in September, making September the busiest borrowing month with around 37% of the quarterly issuance.
ICRA expects most BIS states to adhere closely to their announced borrowing plans, given the strong alignment between planned and actual issuance during April-June. It also expects Tamil Nadu's borrowing to be close to its indicated ₹390 billion despite remaining outside the BIS framework, as the state is likely to make up for lower-than-planned borrowing in the previous quarter. 

ICRA retained its 2026-27 gross state bond issuance estimate at ₹13.4-14.0 trillion rupees, saying the borrowing programme was likely to remain broadly in line with previous expectations despite higher redemptions during the year