State’s efforts to convince RBI on borrowings go in vain 

The State government’s efforts to convince the Reserve Bank of India (RBI) to raise resources to meet its financial commitments appear to have not yielded fruitful results as the apex bank continued to insist on viability and bankability of the projects for which loans have been sanctioned.

The RBI, in its latest instructions to scheduled commercial banks, expressed concern that banks/financial institutions had been found to have violated instructions which require that in case of projects undertaken by government owned entities, term loans should be sanctioned only for corporate bodies. “Due diligence should be carried out on viability and bankability of the projects to ensure that revenue stream from the project is sufficient to take care of debt servicing obligations and that the repayment/servicing of the debt is not from budgetary resources,” the RBI said regarding bank finance to government owned entities.

The development comes at a time when Finance department special chief secretary K. Ramakrishna Rao has been holding a series of meetings with the RBI officials to seek permission to raise open market borrowings (OMBs). The State could not raise OMBs, except for an ad hoc sanction of Rs. 4,000 crore, with just a fortnight left for the completion of the first quarter during which it has planned to raise Rs. 15,000 crore OMBs.

Mr. Ramakrishna Rao explained the Union government that the government had effectively utilised the amounts raised as capital expenditure for schemes like Mission Bhagiratha. Union Finance Secretary TV. Somanathan, during a recent video conference, however raised questions about the loans raised by the government in the name of corporations like Mission Bhagiratha claiming that they have no capacity to repay.

The Union Finance Ministry is reported to have raised questions about the loans raised by the government in the name of corporations claiming that they have no capacity to repay. The government however contended that investments made in the corporations like Kaleshwaram, Telangana Drinking Water Resources Corporation and Telangana Water Resources Infrastructure Development Corporation should be considered as capital expenditure and these would start yielding results soon.

Coming in this background, the RBI circular referred to its earlier guidelines which insisted that projects should have revenue stream that is sufficient to take care of debt servicing obligations and that the repayment should not be out of budgetary resources.

The RBI advised the banks to carry out a review and place before their boards a comprehensive report on the status of compliance with the instructions issued within three months.