India’s central bank has urged state governments to diversify their borrowings across different maturities instead of relying heavily on long-term bonds, while also providing clearer fundraising plans to the market, four people familiar with the matter said. States are expected to raise a record ₹12 trillion ($135.95 billion) in FY26, and bond yields have already climbed 30–60 basis points this year, unsettling markets. The Reserve Bank of India (RBI), which oversees federal and state borrowings, did not respond to Reuters’ request for comment.

According to three of the sources, the RBI advised states during a meeting this week to spread their borrowing across the yield curve. Recent auctions have seen yields on longer-tenor state bonds jump by as much as 50 basis points due to weak demand from banks and limited interest from long-term investors.

The central bank also asked states to adhere more closely to their announced borrowing calendars. States often deviate from these schedules depending on immediate funding needs, leaving traders uncertain. One source from a private bank’s treasury department said most states’ borrowing strategies remain ad hoc. “They tap the market whenever funds are needed, often accepting bids at very high yields, which disrupts the market and causes mark-to-market losses,” the person noted.

The RBI has also relayed banks’ concerns that many large lenders are nearing their internal exposure limits to state debt, banking sources said. However, a state government official told Reuters that states do not view this as a major risk. Additionally, the RBI has encouraged states to reissue existing securities to boost secondary market trading and liquidity. At present, most states prefer issuing fresh bonds at weekly auctions, which limits exit options for investors and compels them to hold bonds until maturity, reducing appetite for new issuances, the sources added.