The Reserve Bank of India (RBI) has advised state governments to diversify their borrowing strategies across various tenures rather than concentrating solely on long-term bonds. This recommendation comes as Indian states prepare to borrow a record 12 trillion rupees ($135.95 billion) in fiscal 2026, a move that has already caused bond yields to rise by 30-60 basis points this year, unsettling financial markets. The RBI, which oversees borrowing for both federal and state governments, emphasized the need for states to communicate their fundraising plans more clearly to avoid market disruptions. During a recent meeting with state officials, the central bank urged states to distribute their borrowing across the yield curve and adhere more closely to their indicated borrowing calendars. This guidance aims to address the ad-hoc nature of state borrowing, which often leads to market confusion and volatility. The RBI also highlighted concerns from banks regarding their internal limits for state debt investments, suggesting that states focus on reissuing existing securities to enhance secondary market liquidity. Currently, most states prefer issuing fresh bonds at weekly auctions, which limits investor flexibility and reduces market appetite for new debt. By reissuing existing securities, the RBI believes states can improve trading volumes and provide better exit options for investors, thereby stabilizing the market.