1. State development loans (SDLs) are bonds issued by state governments to meet their long-term financing requirements. 2. Many states in India have been cribbing about the higher coupon they have to pay on their SDLs over government of India bonds (G Secs) of similar maturities. 3. Reserve Bank of India (RBI) is the merchant banker for state governments as well and there has not been even a single default in terms of SDLs in the past - they argue. 4. Though the arguments appear to be sound and acceptable - a deeper study of the issue brings out the difference in risk perception in respect of these two securities. 5. The liquidity risk can be reduced by increasing the issue size and traded volume.