Banks must stop funding states using future revenues

NEW DELHI: the center and RBI pulled out banks to lend entities to state authorities based primarily on escrow of future state revenue streams or using collectors and courts as security, with the finance ministry seeking an end following since he discovered that most of the loans obtained by PSU Banks, together with SBI.
While SBI was the first to be asked to halt such loans, a source at the country’s main lender said it had extended loans to Andhra Pradesh authorities based on a letter from authorities in Andhra Pradesh. State, which insisted that the required approvals be in place. As TOI reported on Thursday, Andhra is the tallest person on the instrument.
Last year, in a communication to the State, the Union Department of Finance acknowledged that the pledge of future tax revenue was not in line with Article 266(1) of the Structurewhich requires that all taxes and loans must move into the Consolidated fund of State. The letter referred to the Center that state authorities had transferred assets to the AP State Growth Company (APSDC) to raise funds. Last year, India Ranking had noted that its entity scores were based primarily on “unrestricted pledged revenue” on the Additional Retail Excise Tax (ARET) levied by Andhra authorities. Cash from 10 deposits had been blocked for the settlement of debt service obligations in this case.

In 2020, the state authorities had enacted particular legislation to provide statutory status to APSDC for Recognized ARET Revenue Project to undertake particular social and development exercise. A number of provisions of the legislation have also been questioned by the Ministry of Finance. Last year, he found that these provisions would not comply with section 293(3) of the Constitution, which states that states cannot borrow without the Center’s authorization.
In response to India Rankings, eight banks provided loans to APSDC. Authority officials said many banks were state-run, although names could not be confirmed. “The banks have been clearly informed to complete this follow-up. Do the banks assume that they will be able to truly promote the recovery position, which is a security, in the event of default? said a senior officer at the Center.
Faced with other states including Uttar Pradesh, Punjab, MP and HP resorting to similar means, the RBI was forced last month to seek an assessment of these lending practices by the boards of directors of the banks and report on compliance by September.
While the Ministry of Finance signaled its concern last July and the SBI halted disbursements in August, some of the other lenders disbursed loans until November. Officials said the lenders breached RBI rules while there was a wait for 2015.


Comments are closed.