What are state development loans (SDLs)?
State Development Loans (SDLs) are bonds issued by individual state governments in India to fund infrastructure projects and public development initiatives. These instruments offer fixed-income opportunities and are similar to central government securities in many ways, with slight differences in risk profile and yield.
Key features of SDLs
- Issuer: State governments
- Purpose: Fund state-level development such as roads, water projects, and social welfare schemes
- Interest rate: Fixed or floating, depending on the issue
- Tenure: Typically ranges from 1 to 30 years
- Trading: Listed and actively traded in the debt market
- Credit ratings: Varies by the financial strength and fiscal responsibility of the issuing state
- SLR compliance: Qualifies for statutory liquidity ratio requirements, making them attractive to banks
Example
In March 2021, Tamil Nadu issued ₹2,000 crore worth of SDLs:
- Tenure: 7 years
- Coupon rate: 6.95%
- Investor response: Oversubscribed 2.6 times
- Investor base: Included banks, mutual funds, insurers, and provident funds
- Usage: Urban development, roads, water supply, and social welfare
What if...
| Scenario | Resolution |
|---|
| Concerned about risk compared to G-Secs | SDLs typically offer slightly higher yields but come with minor credit risk depending on the state. |
| Want to invest but unsure how | SDLs are accessible via platforms like FYERS during primary or secondary market offerings. |
Though SDLs are backed by state governments, always consider the financial health of the issuing state and current interest rate trends when investing.
Last updated: 26 Jun 2025
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