Why there's no demand for AP govt bonds?

Why there's no demand for AP govt bonds?

Few times, there will be a wide gap in what we say and what we do. When we heard from AP chief minister Jagan Mohan Reddy about all the developmental activities in state, it seemed like state will be in a bright position soon. But, as we go deep, it can be understood that situation of state is totally unwell and it certainly raises many doubts on growth aspects of state.

Recently, Andhra Pradesh government decided to raise Rs 600 Cr through bond auction. But, given the crisis caused by outbreak of Corona Virus, the state government planned to go ahead with just 100 Cr worth bonds.

But buyers don't seem to care too much about bonds and nobody is ready to chase after govt bonds in the current scenario. So, Andhra govt  finally notified an amount of 50 Cr via bonds and yield rate was decided as 9.5%. The AP govt received an approval from Centre to raise Rs 600 Cr via Reserve Bank of India (RBI).

Typically, the central bank will allow states to go for bond auction with an yield rate of 7-8%. But, the current scenario in Andhra Pradesh is totally different and it has made the officials to offer 200 basis points more than other states. Still, there is no demand among buyers.

Given that it's the last day in current fiscal year, state finance dept may not be able to get those funds. Also, RBI may not proceed with the bond auction during these turbulent times. Certainly, it is going to end up state officials in a huge disappointment.

The Covid-19 crisis across the country has led to 21-day lockdown and nothing except the emergency services are functional. It has totally stalled GST collections and exchange income of the state. Besides all the existing problems, AP government is expected to get even more troubled with RBI not going ahead with auction of bonds. Also, this has raised several doubts on demand for AP bonds.

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