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. This limit is determined by the planning commission in consultation with the respective state governments. Generally, the coupon rates on State Development Loans are marginally higher than those of GOI-Secs issued at the same time.
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 still to be 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 are also issued in the physical form (in the form of Stock Certificate) 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 Banks(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 secondary market.