The Reserve Bank of India (RBI) has pegged the gross issuance of State Government Securities (SGS) at Rs. 2.8 trillion for Q3 FY2026, implying a year-on-year (YoY) expansion of ~11%. The planned SGS issuances for the ongoing quarter trails ICRA’s expectations of Rs. 3-3.3 trillion, which was largely predicated on the net amount remaining flattish relative to Q2 FY2026.

The release of an additional tranche of tax devolution by the Government of India (GoI) to the states on October 1, 2025, prior to the normal monthly devolution that will be transferred around the 10th of the month, may have compressed the indicative borrowing amount for Q3 FY2026.

Moreover, the Rs. 120 billion indicated by Karnataka for borrowing in Q3 FY2026 is a fraction of the Rs. 440 billion it raised in Q3 FY2025 (nil issuance in H1 FY2026). Whether Karnataka overshoots the Q3 FY2026 borrowing (as it did in Q3 FY2023) or undertakes substantial issuance in Q4 FY2026, remains to be seen. Had Karnataka indicated a borrowing in Q3 FY2026 in line with Q3 FY2025, the total indicative amount would have been within ICRA’s expected range of Rs. 3-3.3 trillion.

The impact of GST rationalisation on own-tax revenues, change in monthly tax devolution amount, pace of disbursement of interest-free capex loans by the GoI etc. would also influence the actual SGS issuance in Q3 FY2026. In our view, there is a modest likelihood that the indicative amount for Q3 FY2026 will be overshot.

EXHIBIT: Gross and Net SGS Issuance

Note: * Q3 FY2026 is based on Q3 indicative borrowing and YoY growth is over actual SGS issued in Q3 FY2025

Source: RBI; ICRA Research