The Reserve Bank of India said on Wednesday the central government has allowed several states to borrow up to Rs 141.51 billion in the current year to March.
Of these, six states -- Assam, Orissa, Rajasthan, Sikkim and Tamil Nadu and West Bengal -- will raise Rs 36.57 billion, it said in a statement.
The remaining states have been approved to borrow Rs 100 billion under a debt swap scheme agreed with the federal government.
"Under the scheme the states which owe high cost debt of around 13-14 per cent to the central government can lower their repayment costs through the fresh borrowings," a Reserve Bank of India official said.
The official added that the funds raised through the fresh borrowings will be repaid to the federal government.
At the last state loan sale, Andhra Pradesh, Himachal Pradesh and Jammu and Kashmir raised 10-year bonds at 6.6 per cent.
The central bank said Rs 73.25 billion will be raised shortly through an on-tap sale, while the remaining Rs 68.26 billion will be raised in March.
The news drove yields up on government bonds as traders said the borrowings would absorb excess funds from the banking system and may trigger a further sell-off by investors.
The benchmark 10-year bond, was dealt at 6.4558 per cent, off morning's 6.4326 per cent and firmer than the previous close of 6.4448 per cent.