What are SDLs?
- State Development Loans (SDLs) are market borrowings by state governments.
- The RBI issues these securities on their behalf, through auctions.
- Purpose of issuing State Development Loans is to meet the budgetary needs of state governments. Each state is allowed to issue securities up to a certain limit each year.
- SDLs are eligible securities for Statutory Liquidity Ratio (SLR) and Liquidity adjustment facility (LAF) purposes, and are bought by banks, insurance companies, mutual funds, provident funds and other institutional investors.
- Generally, the coupon rates on State Development Loans are higher than those of central government securities of the same maturity. This shows that the central government is considered more creditworthy than state governments.
- In 2015, the Government allowed Foreign Portfolio Investors (FPIs) to buy SDLs up to 2% of outstanding SDLs in the market.
Why in News?
- Fifteen states have recently raised a total of ₹17,783 crore at the auction of the State government securities or state development loans.