Reserve Bank of India said on Tuesday that state governments should keep their overall borrowing requirements at a reasonable level and ensure that sovereign obligations, including guarantees, are fully honoured on time.

During 2002-03, state governments accessed the market for additional borrowings of an amount of Rs 15,442 crore (Rs 154.42 billion) in two tranches. This amount includes Rs 10,000 crore (Rs 100 billion) for debt swap scheme mutually agreed between the Central government and states towards repayment of high cost debt.

"Though repayment of high cost debt is desirable, large borrowings for this purpose, in addition to high level of approved market borrowings for other purposes, put pressure on interest rates", RBI Governor Bimal Jalan said in the monetary and credit policy for 2003-04 announced here.

The timing of issuance and pricing of the securities also become difficult, particularly during periods when there is a bunching of borrowing requirements for various purposes. These difficulties are compounded if there are periodic defaults by some states or their public sector undertakings in meeting their guarantee obligations, he added.

The state governments' net market borrowings of Rs 13,622 crore (Rs 136.22 billion) for 2002-03 were supplemented by additional borrowings of Rs 15,442 crore (Rs 154.42 billion).

While the market borrowing programme in respect of some states has come under duress, RBI hopes to conduct debt management without serious pressure on overall liquidity and interest rates unless there was change in overall macroeconomic situation due to unanticipated domestic or external developments.