States pitch for maximum permissible use of Consolidated Sinking Find

Shishir Sinha New Delhi | Updated on May 25, 2020

Some States complain that despite easing of rules, the RBI has approved for smaller quantum of funds

With their severely stressed fiscal situation, States want to make maximum permissible use of the Consolidated Sinking Fund (CSF) to repay old debts.

State governments maintain a CSF with the Reserve Bank as a buffer for repayment of their liabilities. Set up in 1999-2000 by the RBI, the fund gets contribution from State governments in the range of 1-3 per cent of their outstanding market loans each year. The Fund is administered by the Central Accounts Section of RBI Nagpur. As on March 31, total corpus of the fund was over ₹1.30-lakh crore.

On May 22, the RBI decided to relax rules governing withdrawal from the CSF. Accordingly, withdrawal was capped at 75 per cent of outstanding balance as on March 31, so as to maintain the balance in at a prudent level.

The central bank has sought the States’ consent, after which it will liquidate securities in States’ portfolio to make liquidity available. However, some States have complained that despite their consent, the RBI has approved an amount less than 75 per cent of the outstanding balance.

Bihar, one of five States/UTs having prohibition, has an outstanding of over ₹7,683 crore which means it could have withdrawn nearly ₹5,762 crore but was permitted to withdraw only ₹2,600 crore (33 per cent).

In a communication to RBI, seen by BusinessLine, the State government said that since it withdrew ₹1,000 crore against the accrued interest last month, it should be permitted to withdraw ₹4,762.27 crore from CSF. It argued that it has to pay nearly ₹20,000 crore for redemption of loans and payment of interest during the current fiscal.

“The Covid-19 pandemic is causing stress on the State’s finance and the State would like to utilise resources like the sinking fund for meeting demand regarding outstanding liabilities,” said the communication from the Bihar government. Now,the RBI is expected to take a call on the demand from States soon.

While announcing relaxation on May 22, the RBI said this move will enable States to meet a larger proportion of their redemption of market borrowings falling due in the current financial year from the CSF.

These relaxations to States will release an additional amount of about ₹13,300 crore. Together with the normally permissible withdrawal, this measure will enable the States to meet about 45 per cent of their redemptions due in 2020-21 through withdrawal from CSF.

This change in withdrawal norms will come into force with immediate effect and will remain valid till March 31, 2021.

Published on May 25, 2020

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