Concerns over elongated tenure of government securities as yields harden

The Reserve Bank of India has expressed concern over the issuance of longer tenure State Government Securities by States like Telangana at a time when yields on them have hardened due to domestic and global factors.

Few States — Kerala, Tamil Nadu, Telangana and Jammu & Kashmir — have consciously made efforts in issuing SGSs of more than 20 years. The weighted average yield of SGS’ fell to 7.2% from 7.5% and the weighted average spread fell to 30 bps from 3 bps. “In H1 2025-26, yields have hardened due to both domestic and global factors,” the RBI said in the latest report on “State Finances: A Study of State Budgets of 2025-26”.

The statement assumes significance as the maturity profile of the SGS reflect that 28.2% of outstanding securities have maturity period of more than 20 years followed by Jammu & Kashmir 27.9%, Tamil Nadu 22.4% and Kerala 22.3%. The situation was no different in the previous fiscal when Telangana topped the country with 23.5% of its total outstanding was with maturity of above 20 years followed by Tamil Nadu with 19.7%.

Maturity of securities from 10 to 20 years constituted 41.6% with States like West Bengal (49.5%), Punjab (44.2%) and Mizoram (43%) registering higher numbers. Elongation of tenure will result in slight decrease in the average interest rate of outstanding public debt, but the State will be forced to sustain the debt burden for a longer term.

The RBI report expressed concern that States were depending on few taxes for augmenting their revenue resources rather than expanding to other areas. Prominent among these are Goods and Services Tax. Sales Tax/VAT on petroleum products, State Excise duties on liquor and Stamp Duties and Registration fee on immovable property transactions contributing a major chunk of the State’s own tax revenues.

In Telangana for instance, GST revenue for the fiscal 2025-26 is estimated at ₹59,704 crore, Stamps and Registration (₹19,087 crore), Sales Tax (₹37,463 crore) and State Excise Duties (₹27,623 crore) taking the total to ₹1.43 lakh crore. This is around 80% of the ₹1.75 lakh crore tax revenue estimated during the fiscal. The RBI report accordingly suggested that the State could focus on non tax revenues like mining royalties to augment and expand its revenue base without giving scope for adverse impact on the revenue streams during unfavourable domestic and global conditions.