Mumbai, Jun 29 (PTI) Despite the market being awashed with ample liquidity, the states are forced to offer higher returns on their debt with the weighted average cost for the 14 states that went to the market on Tuesday paying 6.99 per cent.

At the last week's auction, the pricing was higher at 7 per cent--the highest since mid-March.

Fourteen states raised Rs 20,600 crore at the auction of the state government securities on Tuesday, as Maharashtra and Gujarat accepted an additional amount of Rs 500 crore each over the notified amount, while Punjab did not accept any amount on its Rs 1,000 crore 20-year offer. The other states accepted the notified amount.

The number of states participating in today's auction was the highest so far in the current fiscal year, according to an analysis by Care Ratings.

Borrowing cost for the states at today's auction was sustained at the high levels touched at last week's auction which was the highest since mid-March, as the weighted average cost across states and maturities was 6.99 per cent, the agency said.

Borrowing cost for the states has risen by 24 bps since mid-Jun and by 43 bps since the first auction on April 8. This increase can be attributed to concerns over the inflation trajectory with the rise in global commodity prices.

In addition, worries over the anticipated high supply of government securities in ensuing months with the Centre announcing relief measures amid worries over economic recovery and fiscal weakness have been exerting upward pressure on yields.

The spread between the 10-year state securities and the secondary market yield of 10-year G-Secs is 84 bps. The spreads have risen from around 50 bps in early April, reflective of the firming of yields of state debt.

With today's borrowing, total draw down so far has been 14 per cent less than the same period last fiscal. With this 20 states and Delhi have raised a total of Rs 1,44,550 crore so far as against 22 states and Delhi raising Rs 1,67,276 crore a year ago.

According to the tentative borrowing calendar, 26 states and Delhi were to raise Rs 1,78,250 crore in Q1. Of this, only 81 per cent of this has been raised by 20 states and Delhi.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)