State borrowing to rise 26% to ₹3.6 tn in Q3 under new issuance strategy: ICRA

New Delhi: States are set to significantly increase their market borrowings in the October-December quarter, with gross issuance of state government securities (SGS) likely to rise 25.9% year-on-year to ₹3.6 trillion, according to an ICRA report released on Monday.

States are ramping up market borrowings to refinance older debts that are coming due, as well as to meet welfare and revenue expenditure.

The development assumes significance as 26 states and Union territories (UTs) have now adopted the Reserve Bank of India's (RBI) Benchmark Issuance Strategy (BIS), accounting for 77% of the total planned borrowing in the quarter. The RBI's Benchmark Issuance Strategy was introduced on a pilot basis in Q1 FY27 and requires participating states to issue securities within specified maturity buckets, instead of random tenors, set out in the quarterly borrowing calendar. The framework is aimed at bringing greater predictability and standardization to state market borrowing.

The RBI's indicative auction calendar, released on 1 October, has pegged gross state bond issuances by 27 states and two UTs at ₹3.6 trillion in Q3 FY27, compared with ₹2.9 trillion actually raised a year ago. After accounting for estimated redemptions of ₹1.3 trillion, net state borrowing is expected to rise 26.8% to ₹2.3 trillion, up from ₹1.8 trillion in Q3 FY26, it said.

Contrasting with Centre

India has 28 states and 8 Union territories.

The states' borrowing plan, as per the ICRA report, is in contrast to the Centre’s borrowing plan for H2 (October-March), as the government has lowered its estimated market borrowing for FY27 by nearly ₹1.2 trillion and now plans to raise ₹7.86 trillion through dated government securities in the second half of the fiscal year.

The Centre now expects to borrow ₹15.995 trillion through dated securities during FY27, compared with ₹17.2 trillion estimated in the Union budget, according to its borrowing plan released in consultation with the Reserve Bank of India (RBI).

The increase is state borrowings is expected to be concentrated among a handful of large states. Maharashtra, West Bengal and Haryana together account for nearly 70% of the ₹742 billion incremental gross borrowing planned for the quarter.

Maharashtra has indicated an increase of ₹198 billion over Q3 FY26, followed by West Bengal at ₹183 billion and Haryana at ₹135 billion.

The expansion of the BIS could make the indicated borrowing plans a more reliable guide to actual issuance, ICRA said.

Seven more states and Union territories, including Assam, Goa, Haryana, Mizoram, Nagaland, Tripura and Jammu and Kashmir, have adopted the framework in Q3, taking the total number of BIS participants to 26.

Aligned with plans

These 26 states and UTs have indicated borrowings of ₹2.8 trillion in Q3, accounting for around 77% of the total planned borrowing for the quarter. ICRA expects actual issuances by these states and UTs to remain broadly aligned with their indicated plans, based on borrowing trends in the previous two quarters.

The initial nine states raised ₹3.31 trillion in the first half of FY27 against an indicated ₹3.26 trillion, marginally exceeding the planned amount.

The second group of 10 states and UTs that adopted the framework from Q2 FY27, however, raised ₹593 billion, or 92% of their indicated ₹641 billion.

Among the major states that remain outside the BIS, Tamil Nadu, Gujarat and Karnataka have indicated Q3 borrowings of ₹480 billion, ₹150 billion and ₹200 billion, respectively.

ICRA also expects the actual borrowings of states that have remained outside the BIS to be broadly in line with the amounts indicated in their borrowing calendars.

The borrowing schedule is also heavily tilted towards the latter part of the quarter. States plan to raise ₹1.06 trillion in October, ₹1.14 trillion in November and another ₹1.4 trillion in December, with the final month of the quarter accounting for nearly 39% of total Q3 issuance. December borrowings are planned through five auctions.

For the full financial year, ICRA has retained its estimate of gross SGS issuance at ₹13.4-14.0 trillion, against ₹12.8 trillion in FY26. Its estimate of net SGS issuance stands at ₹9.2-9.7 trillion, compared with ₹9 trillion last year.

About the Author

Dhirendra Kumar is a seasoned policy reporter with about 20 years of experience in deep, on-ground reporting across key economic and governance sectors. His work spans finance, public expenditure, disinvestment, public sector enterprises, textiles, trade, consumer affairs, and agriculture, with a strong focus on uncovering structural policy shifts and their real-world impact.<br><br>Kumar has been awarded the Chaudhary Charan Singh Award for Excellence in Journalism in Agricultural Research and Development, recognising his contribution to reporting on critical issues in the farm sector. He has also been a recipient of a fellowship in international trade from the National Press Foundation, which has further strengthened his coverage of global trade dynamics and their implications for India.<br><br>Kumar is known for breaking complex policy developments into clear, accessible stories. His reporting focuses on uncovering under-reported trends, explaining policy shifts, and helping readers stay informed about developments that shape India’s economic landscape.

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