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State Development Loans

State Development Loans:

Four states raised Rs 5,800 crore through state development loans (SDL) auction — about one-fourth of the amount 15 state governments intended to raise in the upcoming days.

  • State Development Loans are dated securities issued by states for meeting their market borrowings requirements.
  • Purpose is to meet the budgetary needs of state governments.
  • The higher the fiscal strength of a state, the lower will be the interest rate (yield) it has to pay for the SDL borrowings.
  • These are securities and they are auctioned by the RBI through the e-Kuber which is a dedicated electronic auction system for government securities and other instruments.
  • Reserve Bank of India holds SDL auctions once a fortnight.
  • The rate of interest or yield of SDL securities is determined through auction.
  • The interest rate will be slightly higher than that of Central Government securities (G-secs) of matching tenure.
  • The investors in SDL are basically commercial banks, mutual funds, and insurance companies that are attracted by the slightly higher interest