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State governments get some relief in loan repayments

The Reserve Bank has allowed them to use some balances in the consolidated sinking funds-CSF- parked with it to repay the bonds.

, ET Bureau|
Last Updated: May 22, 2020, 06.29 PM IST
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State governments have been managing a major brunt of COVID-19 treatment expenses and have also been drained in revenues due to the lockdown.
Mumbai: States may find some relief from repayments of matured bonds through whoch they have borrowed funds from the market. The Reserve Bank has allowed them to use some balances in the consolidated sinking funds-CSF- parked with it to repay the bonds. This will help the meet 45 per cent of redemption needs for the year.

"In order to ease the bond redemption pressure on states, it has been decided to relax the rules governing withdrawal from the CSF" the Reserve Bank of India governor, Shaktikanta Das said at his media briefing on Friday. "Together with the normally permissible withdrawal, this measure will enable the states to meet about 45 per cent of the redemptions of their market borrowings, due in 2020-21"

State governments have been managing a major brunt of COVID-19 treatment expenses and have also been drained in revenues due to the lockdown.

The CSF is maintained by states as a reserve fund for the amortization of their debt obligations. The relaxation offered (till 31 March 2021) will release an additional amount of Rs 13,300 crores for redemption of their market borrowings, according to ratings firm Care. As of end March’20, a total of Rs 1.34 lakh crores was being maintained by different states/UTs with the RBI. Among states, Maharashtra has the highest reserves at around Rs 40,000 crores, followed by Gujarat (Rs 13,277 crore), Orissa (Rs 13,004 crore), West Bengal(Rs 10730 crore) and Andhra Pradesh (Rs 8,059 crore), a report by Care said.

But the central bank which also manages the market borrowing of state governments warned that that the states must ensure that depletion of the Fund balance is done prudently. This change in withdrawal norms will come into force with immediate effect and will remain valid till March 31, 2021, RBI said.

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