STATE DEVELOPMENT LOANS BONDS



State Development Loans (SDLs)  are issued by the State Governments and RBI coordinates the actual process of  selling these securities. Each state is allowed to issue securities up to a  certain limit each year. Generally, the coupon rates  on State Development Loans are marginally higher than those of GOI-Secs issued  for the same maturity.

The State Development Loans are normally sold through the auction process. All  the auctions are multiple price auctions, through competitive bidding,  conducted by Reserve Bank of India  and allotment procedure is similar to that for GOI-Secs. Non-competitive  bidding has been introduced in the auction of SDL. State Development  Loans also qualify for SLR status. Interest payment frequency is half yearly  and other modalities are similar to GOI-Secs. They are issued in dematerialized  form. State Government Securities can be issued in the physical form (in the  form of Stock Certificate) on seperate request and are transferable. Like in the case of G-Secs no  stamp duty is payable on transfer of State Development Loans also.

State Development Loans are eligible securities for Liquidity Adjustment  Facility (LAF)-Repos. Schedule Commercial Bank(excluding RRBs) and Primary  Dealers can offer State Development Loans as eligible securities to the RBI  under LAF Repo.

SBI DFHI is a Primary Dealer and an active player in State Development Loans  market. It also participates in the SDL auction. As a primary dealer SBI DFHI  also participates in the underwriting of auction of SDLs. One day prior to the  auction, bids are submitted by Primary Dealers (PD) to RBI indicating the  amount they are willing to underwrite and the fee expected. RBI, along with  State Govt representatives, then examine the bids on the basis of the market  conditions and take a decision on the amount to be underwritten and the fee to  be paid. State Development Loans are traded in secondary market but are much  less liquid than GOI Secs. SBI DFHI is an active player in primary as well as secondary market.